By JEFFREY BISHKU-AYKUL
More than one year after opening its doors, coffee shop Sip and Savor is seeking investment capital directly from members of the community.
Entrepreneur Trez V. Pugh III is asking individual investors for a total $25,000 in loans by March 1 via website LendSquare. The funds will be paid back with interest over the next two years and will go toward a new patio at Sip and Savor, 5301 S. Hyde Park Blvd., an espresso machine at Pugh’s other Hyde Park cafe, Regents Cup, at Regents Park, 5050 S. Lake Shore Dr., and a planned store at the site of Pugh’s now-closed Bronzeville Coffee and Tea.
“The community lends you the money, you pay the money back to the community,” said Pugh, who expects patio paving and furnishing alone to cost upwards of $12,000. “I just thought it was a great business model. You’re paying the people who are keeping you in business.”
Pugh is banking that after an exceptionally frosty winter, cold-weary Chicagoans in general and dog owners in particular will flock to the five-table patio, with which he hopes will attract an at least 10 percent increase in business.
“Now, the opportunity to grow is there,” Pugh said. “In order to grow, it takes capital.”
Sip and Savor is just one of a growing number of small businesses in Hyde Park seeking loans from ordinary individuals.
Crowdfunding, as it’s been dubbed, is growing in popularity among small businesses in the aftermath of the 2008 financial crisis, in which banks are less likely to loan money. According to a study commissioned by the U.S. Small Business Administration, small business loans declined by more than $100 billion – almost 18 percent – between June 2008 and June 2011.
Thanks to the ease of online financial transactions, entrepreneurs are able to cast a wide net for small investments from people they’ve never met, using websites such as Bolstr and AngelList. Online platform LendingClub – where individuals have borrowed more than $3 billion in loans from individual investors to date – is planning to offer small business loans this year.
Several Hyde Park businesses have used the Internet to bypass traditional bank lending, including Open Produce, 1635 E. 55th St.; Z & H Market and Cafe, 1126 E. 47th St. and 1323 E. 57th St., and The Fair Trader, 1623 E. 55th St.
In spring 2012, four years after it opened, Open Produce sought to raise $7,000 for a new mini split air conditioner to keep produce cold in hot weather.
Manager Becci Behlen said that while at first she found the idea of soliciting funds from customers tacky, the transparency crowdfunding offered was refreshing. “They can see the fact that [the air-conditioner] keeps our vegetables fresher and it means we don’t have fruit flies during the summer,” said Behlen.
Pugh says crowdfunding has afforded him freedom from dealing with banks, which, according to him, make it “next to impossible” for a small business to get a loan. “They make it so difficult for businesses to get money that you have to find alternatives.”
Open Produce finally reached its goal by August 2012, and is now paying back investors their loans plus interest of 3.7 percent; by contrast, many small business credit cards demand interest of upwards of 10 percent after 6 to 12 months.
“It’s really great to be paying it to folks who know and care about us,” Behlen said. “We’re investing in them financially, and they’re investing in us financially.”
To date, Sip and Savor has received $8,220 from nine investors, 32 percent of its $25,000 goal.