Steven Mandis was working on a book about whether Goldman Sachs Group Inc. 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.

A few of the people Mandis met on his search for investment opportunities had trouble relating to a banker who vacations in the Bahamas and describes himself as intellectually curious. His reference to a Goldman Sachs connection fell flat at a call center in midtown Manhattan. He was the only person wearing a blazer at a brokerage whose co-founder was sentenced to probation for insider trading.

Mandis, 44, wasn’t shaken. He invested in two lenders before starting his own firm, Kalamata Capital LLC, late last year. In October, Harvard Business Review Press published his book, “What Happened to Goldman Sachs,” which describes the firm drifting from the doctrine of putting clients first.

“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.”

Rushing In

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. RapidAdvance, one of the companies Mandis invested in, was sold in September to Cleveland Cavaliers owner Dan Gilbert’s private-equity firm.

Businesses that take the loans often have bad credit, little collateral or maxed-out credit cards. Borrowing at high rates can trigger bankruptcy instead of growth for entrepreneurs who lack alternatives. The unlicensed brokers who target them with cold calls are paid more the higher rates go.

“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.”