While banks everywhere have started frowning on assets that aren’t quite “liquid”, there’s a boom underway in high-end pawnshops. Pawnshops, of course, traditionally cater to people who need cash quickly in order to pay bills like rent, automobile payments and so forth. In New York there are nearly 500 pawnshops and, since 2010, the number has increased by nearly 50%.
Authorities are alarmed, unsurprisingly, and the Consumer Financial Protection Authority said that they are considering more pawnbroker regulations. But these regulations have to do with “regular” pawnshops, not the kind that are regularly starting to pop up to handle wealthy consumers who need more than just $100 bill in their pocket to pay the landlady.
In fact, pawn loans to wealthy consumers is increasing rapidly as wealthier people find the, when they need $10,000, $20,000 or $30,000, they can pawn their high-end collectibles, jewelry, gold and even automobiles in order to get that money, and do it much more quickly and conveniently than having to deal with a bank.
Borro’s Pawnshop, one of the biggest in New York, reports that nearly 60% of their clients these days are being referred from financial advisors and accountants and are small business owners. They need money to pay their payroll, reinvest in their businesses and/or take advantage of special deals on equipment or stock.
“We help fill in the gap when a borrower doesn’t have the assets that a bank wants to see on a loan application,” said Borro’s U.S. general manager, Tom McDermott, noting that clients are often people with assets that are hard to value and can’t readily be converted into cash.
The price that his customers pay is quite steep however, as they charge the highest interest rate allowed by the New York City Department of Consumer Affairs, 48%. At your typical bank a small business borrower would pay approximately 5.6%. High interest or not, the fact is that banks have decreased their loans to small business owners by nearly 15% since the financial crisis. With less options, entrepreneurs and small business owners are forced to seek out alternatives for cash sources.
On the positive side, pawn loans can be issued for very short amount of time, don’t involve cumbersome paperwork and, for a business owner with personal credit that isn’t exactly perfect, a pawnbroker can be a much easier, albeit more costly, option. The loan amount that is given by pawnbroker’s is also based on whatever they determine an asset to be worth, normally quite a bit less than market price.
One of those small business owners, Patrick Lieberman, needed approximately $20,000 last year to buy ice cream equipment for a Cold Stone Creamery outlet. The equipment was on sale and wasn’t going to last long. With no time to go through the involved process of getting a bank loan he instead decided pawn a diamond ring for the money. New York Loan Company, a pawnbroker in New York (surprise) loaned him the money he needed at 4% a month. Lieberman bought the equipment and, after three months, repaid the loan.
Easy, quick and (almost) no questions asked. That’s the reason that wealthier people are seeking out pawnbrokers more and more these days in order to make quick monetary transactions or investments.