Its a big mess, and this isn't the only story happening right now - aside from Sterling there are at least 3 more stories that I know of going on right now.
Your post shed a lot of light so thank you for that. Sorry for your personal losses here. So basically these retailers are coming to individuals (or possibly as you mentioned loan sharks) for their credit lines because they can't get normal regular loans. The biggest red flag (or first question someone should ask) is why are you coming to me in the first place? Where is your credit card or LOC to do this. There's probably a good reason the banks didn't give them the credit needed in the first place.
I get it that loans are hard to get and sometimes lending to a friend makes sense. But man you got to be really smart and careful about it - and act like you're a bank and do your due diligence, understand the business model and check the financials and even pay the place a physical visit (all things banks do).
Just my speculation but seems there is this very trusting culture amongst ourselves because we share common religion and other similarities - which is so nice and amazing in some ways but so risky in this way. Many people are uneducated in the matters of serious business loans and don't properly assess risks, they just jump at the points. And make no mistake these are serious loans. I feel like people treat these numbers (credit, credit lines, balances, points) as numbers on a screen. Almost an imaginery, fake number. Ask someone to go into the bank and withdraw their life savings and give it to you for a small % gain and they probably would hesitate more than doing the exact same thing via cc.
Just really sad.