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Max's Take Out Uses Local Startup LendSquare for Customer-Funded Loan

 A new Chicago-based startup lets businesses secure loans from the community members who love them.
Customers Save Max's Take Out
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THE LOOP — Max Khan's fries, hot dogs and gyro cheeseburgers have been called the best in Chicago, and the loyalty program at his tiny Max's Take Out boasts about 380 dedicated customers who drop by at least once a week for a quick bite.

Khan said about 85 percent of the customers at his restaurant, on Adams Street between Wabash Avenue and State Street, are regulars.

"When they come in, something must click in their minds — they're coming there because they like the burgers, or the fries, or something," he said. "But within themselves, they're often thinking, 'Max should be doing this, he should be cleaning up the place,' or whatever. I always read my Yelp reviews to see what people think I should change or do differently, but I can't always afford to fix it right away."

"I have a bunch of construction guys that always come in, and every day, they point out the broken tiles and say 'Max, when are you gonna get that fixed? Let us come out and fix it.'"

Lizzie Schiffman explains how some customers helped Max's stay open:

But when Khan approached a bank for a loan to get necessary new equipment — most of which hasn't been replaced in the 28 years he's been in business — "all they cared about was equity and collateral" and profit-and-loss statements, he said. 

Trying to figure out a way to pay for the work he needed done, Khan said he remembered a postcard he'd been given by a local startup based in River North's tech incubator, 1871. He gave them a call.

Max partners with LendSquare

Jose Valdes, co-founder and chief operating officer of LendSquare, answered Khan's call.

"Max is exactly the kind of guy we want to do business with," Valdes said. "People love his food, and they rely on his business. They want to help keep him afloat."

Two years ago, Valdes and longtime friend Sebastian Villarreal were inspired to create the crowdsourced lending platform when Villarreal's favorite Hyde Park coffee shop, Z&H Cafe, was having trouble keeping up with the 29 percent interest rate on the credit card it used to start the business.

"In ... four years we have opened a new store, grown our range of products, and tried new services," Z&H's owners wrote in their appeal to customers on LendSquare. "Our plans are to continue growing and serving our community better for the foreseeable future. But paying 29 percent on a credit card is like traveling with a headwind."

Neither of Valdes nor Villarreal had a business background. Valdes is a mechanical engineer, and Villarreal was doing neurophysics research at the University of Chicago. But they wanted a platform for Z&H Cafe fans like themselves to help the business out.

Offering prizes that included a free celebratory dinner, discounts for the duration of the two-year loan and the opportunity to name a sandwich, Z&H Cafe raised $18,500 from local supporters, which it will pay back over two years at a modest 8 percent interest rate.

Saving Max's Take Out

LendSquare's team, which has grown from a two-person staff to five-person one this year and boasts big-name clients like Bow Truss Coffee, gave Max's Take Out the usual treatment.

They asked Khan to draw up rewards for lenders. He decided on a combination of free lunches and discounts for the duration of the two-year loan. As customers and fans committed to different loan levels, they had the option to bid on an interest rate, assuring Khan's costs remained low, while guaranteeing a higher return on top of the in-restaurant perks.

In a matter of weeks, his $15,000 goal was fully funded — more than fully funded, including the $500 check an older woman slipped to an employee with a note explaining that she "doesn't like to exchange money on the Internet" but had heard about Max's cause and wanted to support him.

"Enclosed is a $500 loan to be repaid in two years," it read.

"I've never even met this woman, but my staff tells me she comes in twice a week and has a bowl of chili," Khan said. "That must be important to her. It's nice to see."

Discovering relationships like that through the LendSquare campaign has been as rewarding as getting the money, Khan said.

"When I sent out this message, saying 'Hey, I'm working on doing this for you, can you help,' they get to make their own decision, and they can consider things like their experience when they come in for a hot dog. Unlike the bank — they don't care. They want to see the numbers only."

Leaning on the community

"Because I've been in business for a long time — this particular location, I've been here for 19 years — I have built a strong customer base, though I don't get to talk to them as much as my employees do," Khan said.

Khan handles marketing and all operations for the restaurant and its six-person team and said his "very friendly staff" gets more face time with the customers than he does.

Khan said the generous response to his LendSquare campaign showed him that "They're people who care, or they're loyal. You don't know who's out there."

Valdes said that's exactly the point of LendSquare, which is expanding to Georgia and other states where it won't have to work as extensively with state regulators as it did in Illinois to get up and running.

"These are businesses that provide a lot of employment, make communities better, but they didn't have a way to grow," Valdes said.

"Why not, instead of them going through all that hardship, and then if they get the loan, pay the bank at a very high rate — why instead can't they pay their friends and customers back? And on top of paying back with interest, they can also offer nice little perks for people that live around there. Why not? They're there every day anyways."

Valdes and Villarreal said they're glad they can point to Max's Take Out as a success story, both for professional and personal reasons. They're big fans of his gyro cheeseburger.

"That burger changes lives," Villarreal wrote in a LendSquare blog post about Khan's campaign. "It makes the world a better place."