By Justin da Rosa
A Bloomberg investigative report has brought to light small business loan companies offering high interest rates just shy of usury – some with the help of former mortgage brokers who found themselves in hot water following the economic downturn.
“The field is rife with unsavory brokerages, staffed by many of the same people who pushed subprime mortgages a decade ago and worked the bottom rung of the stock market in the boiler rooms of the 1990s,” according to the report.
Several of the people offering these loans to Americans were at the centre of the subprime mortgage crisis, including Mario Figueroa, president of Chadwick Cashflow Advances, who spoke to Bloomberg.
“I saw an opportunity here,” Figueroa said. “The banking world is not using the cheap money the government is giving them to fund small businesses. Thank God we exist.”
Figueroa was surprised it was legal to offer such high rates of interest until he learned that usury laws don’t apply to business loans.
Many of those industry players are the kind of mortgage brokers who were drummed out of the business after the financial crisis – or willingly left after the market collapsed.
Those left in the market say the industry is better for their absence, with increased professionalism and dedication on display. Those aren’t necessarily the hallmarks of the small business loan industry, according to the Bloomberg investigation.
One company alone has seen $349 million worth of loans brought to it by brokers this year alone.
Still, there is obviously a market for these high interest loans.
“The rates, they’re high, no doubt about it,” Jack Metcalf, a small business owner in Minnesota told Bloomberg. “But at the same time, banks really weren’t a very good option.”