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What Killed City Bakery?

posted by Jason Kottke   Oct 24, 2019

Last week, the beloved NYC eating establishment City Bakery closed its doors due to financial troubles.1 Rachel Holliday Smith dug into what happened for The City. It sounds like the company over-expanded, couldn’t get out of the debt it took on, and got into a series of increasingly bad lending situations.

One of those bad deals was borrowing $75,000 from a financial services firm called Kalamata Capital Group and promising to pay back $105,000. That’s a 40% interest rate, firmly in loan shark territory. But this is the bit that really got my eyebrows heading north (especially the bit in italics):

In a statement, the chief operating officer of Kalamata Capital Group, Brandon Laks, said the company “is truly sorry City Bakery decided to close” and stressed that many Kalamata Capital Group employees loved the establishment.

He said KCG made amendments to the funding agreement as City Bakery struggled and “without KCG’s capital and amendments, City Bakery would have closed, and jobs would have been lost, much sooner.”

“Unfortunately, many small businesses close and it is a risk KCG takes when we help fund and support these businesses,” he said.

Let’s be clear here: City Bakery was primarily a place for folks who can afford $5 croissants, but this is one of those instances where capitalism has become deeply disconnected from the people it’s allegedly supposed to benefit. All those KCG employees that loved City Bakery? Meaningless bullshit. A local lender that wants to invest in the community and its businesses doesn’t charge 40% interest. City Bakery needed some solid financial advice, a plan for getting out from under their debt (if possible), and a loan with decent terms. All KCG did was give City Bakery more rope to hang themselves and called it “support”.

Update: A couple people have pointed out that we don’t know the length of the loan and so cannot calculate the annual interest rate. Even so, as the article details, these “merchant cash advance” loans are under increasing scrutiny for being predatory:

As the Duncans soon learned, tens of thousands of contractors, florists, and other small-business owners nationwide were being chewed up by the same legal process. Behind it all was a group of financiers who lend money at interest rates higher than those once demanded by Mafia loan sharks. Rather than breaking legs, these lenders have co-opted New York’s court system and turned it into a high-speed debt-collection machine. Government officials enable the whole scheme. A few are even getting rich doing it.

  1. I was in NYC last week and City Bakery shuttered on the very day I was going to wander over for one of their chocolate chip cookies, my #1 all-time favorite cookie.