NEW YORK (MainStreet)The problem: you need $100 to take your sweetie out to dinner tonight for her birthday and you are tapped out. The bank account comes up goose eggs, the credit card was maxed out last year, mom and dad hang up when you call. What do you do?
Remember that $500 Bulova watch granny gave as a graduation present? The watch that is sitting in a drawer, because who wears watches anymore?
Bingo: you are prime to join the pawn revolution, borrowing for those without credit and who want a kind of on the fly liquidity that, suddenly, is gaining popularity "with new kinds of customers," said Emmett Murphy, spokesman for the National Pawnbrokers Association.
"Pawn has become a mainstream financial service," added Murphy. "People need access to credit, they have to get through to the end of the month."
"Donald Trump calls it 'leveraging assets,'" said industry consultant Steve Krupnik. "Pawn customers just call it 'pawn.'"
Pawn, make no mistake, has its critics who loudly point out the loan carrying charges are toxic. A $100 pawn usually will cost $115 and more to redeem in a month, putting the annualized interest rate into three figures and that's definitely on the wrong side of usury.
But face this: there's been a lot of tightening of credit availability. That's forced more consumers to turn to different kinds of lending and, for some, the answer has become pawn. That includes the well-heeled who may want a discrete, short-term loan that has no presence on any credit report and where, uniquely, it's entirely the borrower's choice to repay the loan (i.e, "redeem the pawn") or to simply walk away from that watch or necklace or whatever (the NPA stats say 85% of pawns are redeemed). "A pawnbroker will never ruin your credit, will never go into collections," said Krupnik.
Once a blue collar preserve, pawn is attracting a broader audience these days. "When they need access to cash and they don't have a traditional source, they are pawning jewelry, fine art, wines," said Murphy.
Don't scoff. There's a steady uptick in pawn by the affluent, said Tom McDermott, a onetime Capital One executive who now heads US operations for Borro, a U.K.-headquartered pawnshop that is pursuing high-end specialty pawn from its Third Avenue storefront in midtown Manhattan. "We lend up to $1 million, and we can make it happen in 24 hours," said McDermott, who indicated Borro has an appetite for classic cars ("we've taken in Maseratis") and fine art ("we've pawned Warhols") in addition to jewelry.
Key customer segments at Borro, said McDermott, are entrepreneurs and small business owners who may have cyclical cashflow and may also find traditional banks standoffish. But when times are flush, these folks celebrate - by buying pricey cars, baubles, etc. So when times are constrained, it could make sense to pawn that diamond pinky ring for a quick $10,000 to make payroll Friday.
The minimum Borro loan, said McDermott, is $1,000 and the company trolls for a national clientele over the Internet.
Talk with a Borro rep, if a deal is struck, you ship your item to New York where it is verified (with some items Borro will send a rep to you). If all checks out, "we wire the money into your account immediately," said McDermott.
Understand: Borro is the exception. Most pawn grinds out dollars at a lower end. At the nation's 100,000 pawn shops the average pawn is around $150, according to NPA numbers.
Woody Whitcomb, CFO of La Familia Pawn, a chain in Florida and Puerto Rico, explained that his average loan is $115 and La Familia is rooting for every customer to redeem his pawn because the core of the business is the repeat pawner who may come in four, six or more times in a year. "They use their pawn as a credit card," said Whitcomb.
Pawn evangelists see nothing but upside for their business. "The business of pawn is renting money," said Krupnik, who added: "There's a growing need for short-term credit and, for some people, pawn is the best answer they will get."
--Written by Robert McGarvey for MainStreet