Tales of a Young Entrepreneur: The Loan Shark

After awhile, my golf ball business started to fall to the back-burner. I was getting close to 12 years old and was starting to have a lot on my plate. Evenings of searching for golf balls turned into baseball, football, and wrestling practice. Seeing the need to still have a steady stream of income (Pokemon cards weren’t cheap), I needed to come up with a new game plan. This is something entrepreneurs do all the time; it’s called pivoting.

While this may be hard to believe, loan sharking wasn’t something I naturally thought of. At 12 years old, I didn’t even fully realize what this meant at the time (in fact, it wasn’t until several years later that what I was doing was indeed loan sharking), though I knew it had a negative connotation associated with it. Loan sharking was something that sort of fell into my lap.

“Am I really doing what’s right by my customers? If you’re an entrepreneur and can’t wholeheartedly say yes to this question, it may be time for a new endeavor.”

It all started with a good friend of my dad’s. This friend sadly suffered from a compulsive gambling addiction, and I sadly decided it was okay to leverage this to my advantage. One day, I overheard this friend asking my dad if he could borrow 20 bucks after having spent his paycheck over the weekend at the casino, to which my dad wisely said no. I, on the other hand, had the money and felt inclined to express this fact.

I offered to loan this friend the 20 bucks to get him by, which he was very grateful for. He assured me that not only would he get back to me, he would give me 5 extra dollars for interest – 25%. I asked my dad if I was allowed, and he begrudgingly replied “It’s your money, you can do what you want with it.” I loaned the friend the money, and that Friday as soon as he got paid, he gave me back the $25 he promised. I like to think being a young, innocent child was advantageous for me in not having people default on their loans. However, I’m sure having a very persuasive father didn’t hurt either.

Two weeks later, the same situation occurred. This time, the friend came directly to me, and the amount was twice as much, $40. As this transaction was slightly more business-like than the last, he asked me how much I wanted in interest. I said I’d have to think on it and would let him know the next day. That evening I discussed with my dad what a good interest rate was to charge people for loans. I could tell he wasn’t too happy that I was considering giving another loan, but he still gave me my answer and said that most credit cards ranged from 12% to 24% depending on the borrower. I decided 20% was a nice even number. Little did I know that credit cards were given in annual percentage rates, which meant when I said I wanted $48 dollars that Friday, I was charging over 1000% APR – DAYUM. Hey, I was young and didn’t know any better…

loans, money, loan sharkHe paid me back, just like I told him he had to, and this pattern continued every few weeks or so for probably close to a year. The loan amounts would get progressively higher, but the interest rates always stayed the same so long as I got paid my money.  I had even gotten a few “referrals” every now and then, which helped business even more.

While it may have took me a few years to realize it, what I was doing wrong, and not just for the fact I wasn’t claiming anything in taxes. I may have had an entrepreneurial mindset, but by giving out loans I was both enabling and taking advantage of a customer who I clearly knew had a serious problem. This is something I feel every entrepreneur needs to ask themselves, “Am I really doing what’s right by my customers?” If you’re an entrepreneur and can’t wholeheartedly answer yes to this question, it may be time for a new endeavor. This may not always be obvious either. Sometimes you will do something that at first may seem to help someone, but in the long term really doesn’t. It is important to continually stop and evaluate if what you’re doing is ethical and the best thing for your customers. For those entrepreneurs who fail to do this, their wrongdoings will inevitably come back around to bite them.

Do you have a similar a story? Was there ever a time you feel you could have treated your customers better? Please share in the comments below.