Ex-Goldman Banker Confirms "Profits Above Principles" With 100%-Plus Business Loans

Tyler Durden's picture

Confirming every Wall Street stereotype that "ethics are all well and good, but money is more important," the ex-Goldman Sachs banker who wrote a book on whether the bank always put "profits above principles" has started a firm charging extremely high rates of interest (above 100% in some cases) for struggling small businesses... oh the irony.


As Bloomberg reports,

Steven Mandis was working on a book about whether Goldman Sachs Group Inc. (GS) put profit above principles when he hit upon a new way to make money.


The former Goldman Sachs banker decided two years ago to get into lending money to struggling small businesses, a niche on Wall Street where brokers offer loans with interest rates that can climb past 100 percent to dentists with bad credit and pizzeria owners behind on their bills. To some, it’s the new face of subprime.

Doing god's work?

“If I’m going to do something, I want to focus on a really big problem so it would mean something,” Mandis said. “And small businesses, I mean, this is the heart of everything.”


Small-business lending has yet to recover from the financial crisis. Loans of less than $1 million are down 22 percent from 2007 because of tighter lending standards, Federal Reserve research shows. Even as banks have pulled back from funding businesses directly, Wall Street investors funneled at least $1.7 billion in financing over the past two years to the high-rate lenders rushing in to fill the gap, according to data compiled by Bloomberg.


Investors seeing a chance to profit from the risky loans include Chase Coleman’s Tiger Global Management LLC, early Facebook Inc. backer Accel Partners and Doug Naidus, a former head of mortgages at Deutsche Bank AG, whose World Business Lenders LLC charges as much as 125 percent.




“This is like a payday loan for a business,” said Pat Fossett, a bankruptcy lawyer in Corpus Christi, Texas, making a comparison to costly cash advances for workers. “Unless they’re making a large profit to pay that high interest, they’re shooting themselves in the foot.”

For the good of America...

“There’s this obligation to try to do something to solve a problem in America in my own way,” he said. “Providing capital to people to grow their businesses and to give jobs to people is I think a good thing.”

Not everyone's so excited...

Goins borrowed $122,000, agreeing to pay back $165,920 in about 11 months, according to a copy of the contract. While Stiles was aware of the loan terms, she said they turned out to be more onerous than she thought. Goins furloughed employees so it could afford the sums that Kalamata took daily and then weekly from the company’s bank account, she added.


“I don’t think it’s fair,” Stiles said. “He’s taking advantage of the small-business owners because of the interest rate that he charges.”

But Mendis defends it thus...

“When you put it in a percentage, it sounds big and eye-popping, but you need to have a relative sense of it all,” Mandis said. “Should we let that company just go bankrupt?”

*  *  *

Whether the detritus of firms should indeed BK or not - especially if they can't function without the need to pay triple-digit interest rates for liquidity - is a tough question. Shamefully, in our new normal, everyone's a winner, there are no consequences, and 'entrepreneurs' believe very idea can be worth a billion dollars (or $5 billion in the case of CYNK) at the flip of a switch. Perhaps the real risk-adjusted cost of capital Mendis is offering should send a message to some that their idea/business is FUBAR... or perhsps he is just another Wall Street extractor.

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Seasmoke's picture

I will gladly take a million dollar small business loan from him @ 100%………… heck make it 110%

AlaricBalth's picture

A banker can leave Goldman, but the stench of Goldman will never leave the banker.

frankTHE COIN's picture

I see your 110 pct, and I raise to pay back not less than 130 pct.

Harbanger's picture

Problem is they won't lend you $$ without liening some collateral that's of higher value than what you borrowed.  When you can't pay the interest your small business goes to the auction block.

NoDebt's picture

Who gives a shit if your business was already headed there anyway?  Just keep pumping that fiat into the economy.  Banks lend it without expectation of repayment because they know the Fed will endlessly refill their coffers.  The Fed is DESPERATE to get money into the economy.  If that's done through loans that will never be paid, so be it.

Harbanger's picture

If you can get a loan without expectation of repayment then you must know someone in the club.  Otherwise they don't lend money to anyone that doesn't already have something they can lien, even it's only the thing you're buying less the money you put up.  They own that thing you bought or what you had liened to get the loan.  I don't think the banks will get bailed out again, that would immediately destroy the dollar, I think bail-ins by account holders is more likely.

frankTHE COIN's picture

I'll just use the Copper I have in my garage for Collateral. I've used the same pile dozens of times by now.

CheapBastard's picture

My next life will be on EZ Street 'cause I'm going to be a Banker; no worry about petty things like 'the law' or rules. No cares about 'bad loans' or 'defaluts' since once I make the loan an sdgety the Bonus, I move on down the road to the next fat deal and associated bonus. 


As a banker, there's no such thing a 'malpractice' ... there only non-negligent 'bad judgment' and no one is culpable, no one goes to jail or loses a license like the peasant lawyers or doctors have to deal with when they make a mistake. No one is "fired" [God Forbid!] since we're all doing God's work. We are the all powerful and very necessary 'merry market makers.'

And when th etime come to resign.depart or be thrown out, we are handed a Golden Parachute with a Fat Pension. 


Aaaaahhhh, a Bankers life is sweet! In my next life, I'm becoming an invesmtent banker. Don't worry, I wont forget all the 'Little People" met here on ZH...they'll hold a special place in my heart ...somewhere. 

junction's picture

Mafia loanshark rates from the Goldman Sachs crime family.

stacking12321's picture

there's nothing wrong in principle (no pun intended) with loaning out money at high interest rates.

people are responsible for their own actions, and for judging whether entering into such an agreement is worthwhile for them (hint: it rarely is).

but in a free society (like the one we used to have), people are free to make their own choices, and to take personal responsibility.



stormsailor's picture

good deal,  take out as much as you can get blow it out to yourself in salaries,then declare bankruptcy and tell them to go fuck themselves, only do this if you are going out anyway.  no legitimate small business would even consider such a loan

stacking12321's picture

really? you've talked to *every* small business on the planet, to come to that conclusion?

i've known people in my industry to have taken out $100k's of cash for a quick-flip deal at 1%/day, and made very good money on short-term deals.

it is suicide, though, to use it for ongoing expenses, a very slippery slope indeed

fonzannoon's picture

Not one comment so far because everyone hopefully is thinking the same thing. NO ONE FORCED THEM TO TAKE THE LOAN. THEY COULD HAVE DONE THE MATH AND REALIZED THEY SIGNED UP FOR AN ASSISTED SUICIDE.

NoDebt's picture

When money is meaningless and has no value, who cares if lending standards are lax or if borrowing it (with no intention of repaying) is advisable?

Lenders are loaning money without care of repayment because they'll always be given more.  Borrowers are, naturally, taking it without care of repayment because they want to pocket the free money and walk away.  

It's just how it is when the only thing that matters is how close you are to the free money spigot.

See the top-kick post in this thread.  That's it exactly.  You pretend to loan me money in good faith, I'll pretend I'm going to repay you.  

UselessEater's picture

fonz its hard for some to not sign up - they do not understand that the "good" times will not return; they do not truly comprehend their homes are on the hook.... tried more than once to explain it and got the "good" debt in the short term meme fed back to me; I recognise the stupidity and wistful thinking of conditioning and conning...some days I feel sympathy, then remember I didn't indulge in a loan because of my own stubbornness but hey I got royally jacked by the GFC anyway 'cause I was still asleep!!

messystateofaffairs's picture

I imagine that what a lot of these people who are fundamentally decent need more than capital is sound business counciling. People get lost and what is obvious to you is not obvious to them. To get out of the maze they are trapped in they need a guide to go with the capital. Capital alone cannot save almost all of them but capital with guidance can save some.

Robot Traders Mom's picture

We aren't enslaved, I don't care what anyone says. 


Everyone was waving their flags on July 4th so I assume it's all good...Freedom isn't free!



Yen Cross's picture

 I almost forgot the meaning of this term during this ZIRP buyback frenzy?


medium giraffe's picture

Sorry guys, off topic comment, one for Tylers to pick up and run with:


UK Govt. goes full retard re. privacy laws, political parties finally agree on something.



UselessEater's picture


Let me read Prince Charlies letters to MPs please.

buzzsaw99's picture

the squid holding company is a criminal organization that loots shareholders and taxpayers alike but this story is a nothing burger

delivered's picture

I've commented on this issue before and will again. I work with a number of small businesses that are in this exact situation and basically are looking to these hard money lenders (i.e., Loan Sharks) to save their business from collapse today so that they somehow can survive another 3,6,12 months and hope for a miracle. The market for high interest loans is large and growing extremely fast given that most small businesses that need this kind of financing are not "bankable" or can even get a loan from the ABL market (asset based lending). So they turn to these dark pools of capital and turn a blind eye to the true cost of capital in order to survive another day. 

On one front, these small businesses have nobody to blame but themselves as they have poor to no accounting/financing controls, results, information, etc. to support securring a better loan facility. Basically, they have no idea how to even calculate an implicit interest rate, how much profit they will need to generate to servive the debt, etc. On the other front, these lending sources represent nothing but vultures feasting on this market without any regard for the well being of the small business. Most of these companies represent nothing more than a method to transfer wealth from the small business owner that must work even harder, risk personal assets (as thes loans almost always include PGs/personal guarantees), and deploy capital and extremely high rates to service debt rather than re-invest earnings in the business for future growth and yes, expanding their payroll.

The bottom-line with almost all of these groups is simple. Rather than working with the small business and helping them with understanding their situation, improving operating results, etc., they are basically 100% focused on two items - Return of capital and return on capital. Period. The statement of helping these companies avoid BK is complete and total BS as these groups will stop at nothing to extract everything they can to achieve the two desired results (often leaving the company in far worse shape than when the loan was secured). Hell, even Square is getting into this game but packaging it not as a "loan" but rather as an "advance" (e.g., borrow $20k and repay $2k over 11 weeks). 

This really represents the true state of the US economy and capitalist system. What the US use to be was a great generator or producer of wealth and value. Now the country is nothing more than the most efficient system of transferring wealth the world has ever witnessed. Any you wonder why job creation has been a joke, look no futher than to the struggles of small businesses and how the Pirate Funds (more PC than rape, pillage, and plunder) are sucking the life from these companies using every tool in the woodshop to extract what little wealth is left. 

Cthonic's picture

A business with no cash and no credit line has already been dealt a death blow.  One can argue that these lenders are vultures, however usually there are other options available to the business owner like 1) bailing their sinking ship with their own funds, 2) bringing in new equity partners and likely losing control over the venture, 3) liquidation.  No one forces anybody to take one of these loans.  I'm sure they are misrepresented and as lopsided as possible without being considered unconscionable or a contract of adhesion and are as financially expensive as the owner will bear.  On the other hand, a lot of small business owners aren't exactly saints and are looking for money they have no intention to pay back, or they use the debt like a poison pill to run off cash poor partners.  Another thing is that like any other bespoke legal work, setting up a business loan can be very costly and if the recipient has no funds to cover that then such expenses are going to be rolled into the payments and show up as high imputed interest rates.  Having seen both sides of this coin, I can say I've only seen a few legit businesses take a loan like this and survive to the present day after paying it off, most of the others were too crippled, too crooked, or too undercapitalized to survive.

WTFUD's picture

' Bitch have you seen my Platinum JPM EBT card? '

90% of small businesses should NEVER be in business from the get go. The odds of success for even the brightest when you ADD up ALL the COSTS is scary.

Just look at Gordon Ramsay's Nightmare series where he assists failing eateries. Despite living half a mile from the sea/ocean the owners buy frozen seafood from Wallymart. In hock to the tune of $300-500k and hemorrhaging money they refuse to 'accept change '.

So damn right and as much as i hate to give these cockroach banks any leeway it takes two to tango.

FredFlintstone's picture

I think most small business owners are not too good at math. They open up a shop using a second mortgage and then get bled dry after a few years of losing $1,000/month.

I see a lot of these idiots in my small town. Maybe 100 people might walk through their shop in a week, mostly on the weekend doing some window shopping. Maybe 10 of them drop $30 on some over-priced shit. The owner clears $150. Owner takes no salary and goes in the hole every month. How stupid. Get a job and quit playing shop keeper. This isn't grade school, this is life.

robnume's picture

Steven Mandis, Get the Fuck Off of My Planet!!

Sudden Debt's picture

before you take out loans like that, you need to calculate 1 thing and 1 thing only:



if no on the 2 questions, don't do it.