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Lenders Target a New Subprime Market

Brokers work the phones to pitch high-rate small business loans
Lenders Target a New Subprime Market
Illustration by 731

From an office near New York’s Times Square, workers at World Business Lenders call truckers, contractors, and florists across the country, pitching loans with annual interest rates as high as 125 percent. When borrowers can’t pay, the company seizes their vehicles and assets, sometimes sending them into bankruptcy, according to more than two dozen former employees and clients. World Business specializes in subprime business lending—or “alternative” lending, as its practitioners prefer to call it—making high interest loans to small companies that have trouble borrowing elsewhere. The industry has swelled to more than $3 billion in loans a year, estimates Marc Glazer, chief executive officer of Business Financial Services, a subprime lender in Coral Springs, Fla. That’s twice the volume of small loans guaranteed annually by the Small Business Administration.

Loans to businesses are largely unregulated and not subject to the federal rules that protect individual borrowers. “This is the new predatory lending,” says 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.”