Introducing “Subprime Business Lending” – Loans with 125% Interest Rates Are Being Securitized and Sold to Investors

Salespeople said they were told to refer to “short-term capital” instead of loans and “money factors” instead of interest rates. Eight of them said they talked business owners into applying by saying they’d offer a good rate after reviewing bank statements.

World Business Lenders charged most people 125 percent annualized interest rates on six-month loans regardless of their situation, five former employees said. The borrowers often put up cars, houses or even livestock worth at least twice as much as the loan. About one in five were going bust as of last year, two people with knowledge of the matter said. One said that 9 percent of the loans made this year have already defaulted.

“The sweet spot is someone who can limp along well enough for six months but probably isn’t going to be around much longer,” Opportunity Finance Network’s Pinsky said. “They’re in the business of helping these businesses fail.”

– From yesterday’s Bloomberg article, Wall Street Finds New Subprime With 125% Business Loans

The following story represents one of the most mind-bogglingly disturbing reflections of what is really happening beneath the lipstick pigged representation of the U.S. economy the mainstream media regularly portrays. At the center of the story is a company called World Business Lenders LLC, which is staffed with veterans of Jordan Belfort’s (the Wolf of Wall Street) boiler room firm as well other former brokers banned from the securities industry. It sports a business model that lends money at 125% annualized interest rates to small businesses.

Oh, but the story gets better, a lot better. Large Wall Street banks like Goldman Sachs and corporations such as Google are also naturally getting into the market. For example:

OnDeck Capital Inc., a lender with funding from Google’s venture-capital arm and PayPal Inc. co-founder Peter Thiel, sold $175 million of notes backed by business debt last month in a deal put together by Deutsche Bank. Interest rates on the loans ranged from 29 percent to 134 percent.

“Don’t be evil,” right Google? Since there’s nothing evil about 134% interest rates, particularly when you don’t pay taxes.

Of course, predatory lending by bailed out financial institutions is nothing new in post-financial crisis America. I covered this last year in my post: TBTF Banks Enter Payday Loan Business with 500% Interest Rates.

Naturally, Wall Street is also starting to package the loans into securities that can be sold to investors. You can’t make this stuff up.

From Bloomberg:

From an office near New York’s Times Square, people trained by a veteran of Jordan Belfort’s boiler room call truckers, contractors and florists across the country pitching loans with annual interest rates as high as 125 percent, according to more than two dozen former employees and clients. When borrowers can’t pay, Naidus’s World Business Lenders LLC seizes their vehicles and assets, sometimes sending them into bankruptcy.

Naidus isn’t the only one turning to subprime business lending. Mortgage brokers and former stock salesmen looking for new ways to make fast profits are pushing the loans, which aren’t covered by federal consumer safeguards. Goldman Sachs Group Inc. and Google Inc. are among those financing his competitors, which charge similar rates.

“This is the new predatory lending,” said Mark Pinsky, president of Opportunity Finance Network, a group of lenders that help the poor. “And the predators, just as they did in the mortgage market, have gotten increasingly aggressive.”

Subprime business lending — the industry prefers to be called “alternative” — has swelled to more than $3 billion a year, estimates Marc Glazer, who has researched his competitors as head of Business Financial Services Inc., a lender in Coral Springs, Florida. That’s twice the volume of small loans guaranteed by the Small Business Administration.

Wall Street banks are helping the industry expand by lending originators money. They’re starting to package the loans into securities that can be sold to investors, just as they did for subprime-mortgage lenders.

Of course they are.

OnDeck Capital Inc., a lender with funding from Google’s venture-capital arm and PayPal Inc. co-founder Peter Thiel, sold $175 million of notes backed by business debt last month in a deal put together by Deutsche Bank. Interest rates on the loans ranged from 29 percent to 134 percent, according to a report from credit rater DBRS Ltd., which labeled most of the deal investment grade.

Representatives for Thiel, Google Ventures and Goldman Sachs, which lends money to OnDeck, declined to comment.

Brokers are popping up around the country to originate loans on behalf of lenders including OnDeck and World Business Lenders. The companies pay fees to the brokers of about $6,000 for finding people willing to take a $50,000 loan, according to current and former brokers, most of whom asked not to be identified to preserve their job prospects.

Some stock brokers have jumped to business loans after getting kicked out of the securities industry by regulators.

Naturally.

“Our industry is absolutely crazy,” said Steven Delgado, who left World Business Lenders last year to become an independent loan broker. “There’s lots of people who’ve been banned from brokerage. There’s no license you need to file for. It’s pretty much unregulated.”

David Glass, 39, was still on probation for insider trading when he co-founded Yellowstone Capital LLC, a New York-based brokerage and lender that originated $200 million in loans last year, including for OnDeck.

Since Aristotle condemned the “breeding of money” as the worst way to make it around 350 B.C., societies have both enacted laws against usury and devised ways to work around them. New York State instituted a 25 percent interest-rate cap after a 1965 investigation found the Genovese crime family backing a Fifth Avenue business lender that charged 5 percent a week.

“We are already helping so many entrepreneurs to realize their dreams,” Naidus said in an undated video that was posted on World Business Lenders’ website. “I can relate to every one of our customers because I am the prototype of our customer.”

“We are already helping so many entrepreneurs to realize their dreams.” You’ll see later on what sorts of dreams are being realized. What a bullshit artist this guy is.

World Business Lenders put up job listings seeking former brokers, and they came. A February orientation schedule provided by a former employee shows that training is run by Bryan Herman, who got his start under Stratton Oakmont Inc.’s Belfort, the con man portrayed in “The Wolf of Wall Street.” Herman later ran his own boiler room in the 1990s and avoided jail by informing on other brokers when he was charged with fraud in 1998, court records show. Another salesman was released from prison in 2010 after serving about a year for penny-stock fraud.

Salespeople said they were told to refer to “short-term capital” instead of loans and “money factors” instead of interest rates. Eight of them said they talked business owners into applying by saying they’d offer a good rate after reviewing bank statements.

World Business Lenders charged most people 125 percent annualized interest rates on six-month loans regardless of their situation, five former employees said. The borrowers often put up cars, houses or even livestock worth at least twice as much as the loan. About one in five were going bust as of last year, two people with knowledge of the matter said. One said that 9 percent of the loans made this year have already defaulted.

“The sweet spot is someone who can limp along well enough for six months but probably isn’t going to be around much longer,” Opportunity Finance Network’s Pinsky said. “They’re in the business of helping these businesses fail.”

Dreams being realized.

Former employees said finding qualified borrowers willing to pay their rates proved more difficult than Naidus made it sound. Six said they questioned whether their business was legal. Two others said they wondered why the company seized cars that weren’t worth enough to cover the repo man’s fee.

This story serves as a good example of the increasing polarization of American culture between those who have “access” to credit and those who don’t. While private equity firms are selling debt deals to investors in order to pay themselves dividends, and junk bonds are being sold at near record low premiums to treasuries, small businesses have no access.

The solution is loans at 125% interest rates, far more than my brother witnessed in his poor rural community when he was in the Peace Corps in Guatemala. As usual, the Fed is subsidizing the rich and leaving everyone else hanging out to dry.

In Liberty,
Michael Krieger

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12 thoughts on “Introducing “Subprime Business Lending” – Loans with 125% Interest Rates Are Being Securitized and Sold to Investors”

  1. “Since Aristotle condemned the “breeding of money” as the worst way to make it around 350 B.C.”

    Aristotle was being literal – when money is cows, it *literally* breeds.

    CF the etymology on “chattel.”

    It was his opinion that there are better ways to earn a living than waiting around for cows to reproduce. Thales, for example, predicted a good grape harvest, bought all the wine presses in town, and made a killing *just to prove that he could.*

    Payment ‘in kind’ literally meant the calves born while some entrepreneur went off to work, leaving his cows aka cash with a ‘banker’ for safe-keeping.

    Trying to put words in Aristotle’s mouth like that, Michael, really is beyond the pale, and wouldn’t serve your point even if it wasn’t sleight-of-mouth, and even if millions of people didn’t know better and see your BS for what it is. As it is, it shows that the only problem you have with bullshit artists … is the competition.

    Learned what *actual* freedom is, yet?

    Hint: usury is a victimless crime, so you’re well off the anarchist reservation when you mistake a price you don’t like for violence.

    I’m pretty sure that your problem is that you’ve mistaken power for freedom…but you don’t want to talk about it…because I’m so *far* off base?

    No, running away from an honest question is what people do when they know they are on the *wrong* side of an issue.

    It’s not going away, you know; your ignorance isn’t going to turn into something else just because you don’t like being wrong.

    Reply
    • Hint: usury is a victimless crime

      REALLY, WHO FUNDED THE PREDATORS?

      The Fed……

      the predators would have been extinct if not for qe, zirp, tarp and the crony model of creditism..

      maybe some of these businesses would be benefiting from lower overheads if the markets truly cleared,,and the money used to pay Shylock et al could have been used for retained earnings and self financing projects and/or payroll,….but that was put off by the crony central planners…

      so i don’t see how you can say it’s a victimless crime…there are victims….those outside the inner circle.

    • Debasing is distinct from usury.

      “so i don’t see how you can say it’s a victimless crime”

      For the same reason prostitution isn’t: because the parties CHOSE to engage, obviously.

      “…there are victims”

      No. There are people who should have known better.

      Consult Webster’s if you plan to continue, because right now you’re just abusing the language and proving yourself ignorant.

    • The parties have been set up to fail by those tbtf….

      I don’t need lessons from a troll…thanks though.

    • “The parties have been set up to fail by those tbtf”

      Leaving aside the questionable premise that bankers love giving loans to people when they don’t expect to get paid back, lets address the facts:

      The fundamental ‘set up’ in question was the *agreement* by the ‘victims’ to a price, a point you can’t answer because it trashes your claim utterly.

      Because of that ‘agreement’ the ‘setup’ is a fabrication of your own rationalization process.

      “At a price I don’t like” is not what ‘violence’ means.

      To show violence or evil or immorality you really do have to show that someone’s free will was violated, and you’ve totally failed to even *face* that point, let alone defend it.

      You are of course free to refuse to learn from anyone you don’t want to, and for any stupid reason you think apt.

      But what’s the point?

      Don’t you want to know what you’re talking about?

  2. We know now governments and the crooked wall street wolfs and banksters are.

    But what about the braindead sheeple that sign loans with a weekly 5% interest rate???? You get what you deserve.

    Reply
  3. More U.S. Lies As The Public Is Going Broke

    “You cannot create wealth out of little slips of paper.” Ludwig von Mises

    I suspect the US public is really running out of money. I note the restaurants here in La Jolla are lacking customers. Last night I ate at one of my favorite restaurants, and I was the only one in the room. This lack of money seems to be affecting the big retailers. As proof, glance at the charts of the popular big retailers below.

    I’ve been thinking about the whole idea of the Federal Reserve and the government openly lying to the American people. It’s unbelievable that our representatives would have the unmitigated gall to feed us obvious lies. In the end the truth will come out, and the liars will (I hope) pay the price.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/5/23_Richard_Russell_-_More_U.S._Lies_As_The_Public_Is_Going_Broke.html

    Reply
  4. Bernanke Money-Grubs From the .01%

    “[Bernanke] gave this stuff out [inside information -FJS], but I didn’t realize what he was saying at the time, so I didn’t do a great trade.”
    Hedge-fund manager David Tepper, after paying $200,000 to take former Federal Reserve Chairman Ben S. Bernanke to dinner, quoted in the New York Times, May 21, 2014
    Ben S. Bernanke continues to be a man of his times. His mind never looks backward or forward. It is as if every day is complete within itself, with no attachment to precedent; no past, no record, no history, and, in the future, he will bear no responsibility. Some precedent may be helpful to critique former Federal Reserve Chairman Ben S. Bernanke’s current escapade.
    It will be interesting if Mervyn King reprimands his former cellmate from M.I.T. He may. King has been one of the few central bankers who admits central banks played a part in the “the worst financial crisis in global history, including the Great Depression” [B. Bernanke to the FCIC in 2009. This declaration reminded the Committee “back off, I saved the word” – FJS]
    Particularly revolting is Bernanke selling himself (being a family publication, a more accurate verb lies dormant) to the .01%. For appearance sake alone, such blatant money-grubbing offers grist to those who see the Federal Reserve as hostage to banking interests. Similarly, claims of “Federal Reserve independence” and other antiseptic nonsense will lose credence to a jaundiced eye. – See more at: http://www.aucontrarian.blogspot.com/2014/05/bernanke-money-grubs-from-01.html

    let everyone else eat sub-prime rates?

    Reply
  5. 125%?? Who is paying that? I came across a few companies myself last year and even though their rates weren’t 125% it was still up there. No one should ever pay that and especially not with the restrictions accompanying them. We’ve taken 3 loans from Yendora Capital and they’ve all been very reasonably priced.

    Reply
  6. How do the people pushing these loans even sleep at night? I wonder if they actually believe they’re helping people, or if they consciously know that they’re essentially scam artists?

    Reply

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