Subprime Lending Becomes New Way to Profit for Banned Brokers
Mortgage brokers and former stock brokers looking for new ways to make fast profits are turning to subprime business lending, referred to as one kind of “alternative investment.” The subprime business lending industry has swelled to more than $3 billion a year.
For example, World Business Lenders LLC serves underserved small businesses and charges most people 125 percent annualized interest rate on six-month loans regardless of their situation. The borrowers often put up cars, houses or even livestock worth at least twice as much as the loan. When borrowers can’t pay, World Business Lenders seizes their vehicles and assets, and sometimes sends them to bankruptcy. About one in five loans went bust as of last year, and 9 percent of the loans made this year have already defaulted.
According to a former World Business Lenders employee, the subprime lending industry is unregulated, and as a result, a haven for those banned from brokerage industry. No license is requiring.
Wall Street banks help the subprime business lending industry expand by lending originators money. They package the loans into securities that can be sold to investors, just as they did for subprime mortgage lenders. 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 in a deal put together by Deutsche Bank with interest rate ranged from 29 percent to 134 percent.
Brokers are popping up around the country to originate loans on behalf of lenders like OnDeck Capital 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. And some stock brokers have jumped to business loans after getting kicked out of the securities industry by regulators.
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