Forget your image of a dusty, dingy shop. High-end pawn shops catering for a rich clientele are becoming increasingly popular in the UK and the USA. Quick Loans Express consider this phenomenon in depth.
In this article, Quick Loans Express – a quick loans UK lender, look at this latest development of pawn shops for the wealthy, the service that they offer and how they operate. What kinds of items are given as a pledge? Finally, we look at the reasons why the wealthy use their services. Why don’t they apply for a loan from a mainstream lender?
What Services do High-End Pawn Shops Offer?
In the UK market, the core business of high-end pawn shops is for sums of £5,000 to £50,000 although they may consider amounts of up to £1 million in some circumstances. The interest rate charged ranges from 2.99-6.99% per month. According to Borro, their customer tends to be male, self-employed and on average 43 years old who borrows around £15,000.
The payback rate for such pawn shops is 90% (compared to 85% for the industry as a whole). Those who default are notified and if necessary, given an extension before their pledge is put up for sale. Pawn shops operate in accordance with the Consumer Credit Act of 1974 and regulated by the FCA.
What Items do Customers Pledge at High-End Pawn Shops?
These pawn shops don’t accept any pledges that are worth under £3,000. They have a team of valuers to work out a fair price. Their concern is the item’s re-sale value and not what the owner purchased it for. So what kinds of items are commonly pledged by the affluent?
- Works of art
- Luxury cars and motorbikes
- Fur coats
- Designer clothes and accessories (such as leather handbags)
- Fine wines
- Luxury watches
Why do the Affluent Need the Cash?
In the same way that the British 19th century landed gentry were land-rich but cash-poor, the clientele of these high-end pawn shops are often assets-rich but face a cash-flow problem. Their philosophy is to make their assets work for them instead of leaving them to gather dust.
Some clients are avid collectors – of luxury cars, for example. They have their liquidity tied up and use their collection to fund further purchases. Other clients use the services of these pawn shops as a line of revolving credit. However, wealthy entrepreneurs are increasingly using high-end pawn shops to access large sums of capital quickly to invest in business deals. Unlike their poorer counterparts, going to a pawn shop isn’t a sign of financial distress but a way to seize a business opportunity.
The CEO of Dewey Burke in the USA cited the example of a client who was able to raise $400,000 in 48 hours to finance a commercial real estate deal by pledging his collection of luxury watches.
Pamela Wright (of Wright Pawn & Jewelry based in Houston) said that previous clients had used their services as an alternative to a business loan. They’d been able to set up successful businesses ranging from patenting a new product to starting a delivery service.
The question remains: if they’re so affluent, surely they wouldn’t be turned down for a bank or payday loan?
Why do the Rich Prefer to Use a Pawnbroker?
When entrepreneurs hear about an exciting new business opportunity, speed is often of the essence. They don’t have time to apply for credit from a bank, supply all the necessary paperwork and wait for the bank’s decision.
One of the main advantages of high-end pawn shops is that once an item is evaluated, the decision to advance money takes a matter of days or even hours rather than weeks. This speedy approval is because unlike other creditors, pawnbrokers don’t need to carry out affordability checks. They base the borrower’s creditworthiness on the re-sale value of the pledge and not on their earning potential. If the business opportunity doesn’t pan out, then they lose their valuable item.
Another drawback of mainstream lenders is that they expect to see a well-thought-out business plan. Using this as their starting point, they’ll check how risky the venture is. Often entrepreneurs are taking a calculated gamble on the outcome of their investment. This is something that banks are reluctant to finance.
High-end pawn shops are a niche market, but they are rapidly expanding. The Beverly Hills-based The Loans Companies operates from 3 locations in the USA but is considering opening a fourth while Borro has seen a turnover of £240 million since 2008. The main difference between these shops and the other 2,250 pawn shops in the UK is their clients’ reasons for pledging an item. It isn’t a question of struggling to get by but using their assets to make even more money. Banks can’t compete with the speed and convenience of the service that pawnbrokers offer their clients.