October 23, 2014
The Ugly Mug Cafe is a coffee shop in Chicago’s Noble Square neighborhood. The owner, Mikky, needed $25,000 to build a patio. Even though this would effectively double his seating capacity, he wasn’t able to get the money he needed! Banks wouldn’t lend and credit cards were way too expensive. So what can Mikky do?
This is one example that if you’re a small business, getting a small loan can be very difficult. The reasons vary but the outcome is the same: You need the cash to improve your business and make your customers happy.
Going back to Mikky, he found a solution: a Chicago-based startup called LendSquare. LendSquare facilitates loans directly between small businesses and the people who know them best: their customers. Banks are too often removed from the benefits of their loans, except for the interest payments of course.
The platform works by giving businesses a way to raise a pool of loans from their own customers. Businesses use the platform to ask for loans and set the highest interest they are willing to pay. Customers, or in this case lenders, bid on the loan’s interest rate, stating what is the minimum return they would accept.
While LendSquare might remind you of other crowdfunding platforms like Kickstarter and Crowdfunder, the main differentiator is LendSquare’s ability to facilitate loans and pools money from small groups of people, not the public at large.
“What we are trying to do is solve the problem of growing and financially sustaining communities. We see the best entry point is through small, local businesses,” says co-founder and CEO Sebastian Villarreal. “This is because businesses serve as the connection between the local economy and those that live and thrive in that community.”
Close relations between the lender and borrower is what makes LendSquare all the more effective. Instead of using money from outside of the community, the businesses customers, neighbors, friends, and family become the lenders for the loan. These are people who actively visit, shop, and value the business and its owner’s success.
“This way we are ‘keeping the dollar in the neighborhood’ resulting in more robust communities,” explains Villarreal.
Mikky used LendSquare’s tools to share his loan with his social network and was able to raise fund in a couple of weeks. He not only built the patio but also gained more customers brought on by the fundraising campaign. The loan helped him double his revenue in the spring and summer.
Lendsquare recently graduated 500 Startups in San Francisco as part of Batch 10.
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