One thing Kamaaina Loan blog hasn’t covered much is how pawnbrokers do business with small businesses. Usually, the actual transaction is with an individual, as with the vast majority of pawn loans, but “luxury asset lending” differs because it is a loan for much more money than a typical pawn loan, and it is taken out to tide an operating business over a financial hump — like making a payroll, which is much different from asking for a few hundred dollars to cover an emergency car repair.
This sort of loan has been a part of the pawnbroking business right along, but only with the increased attention paid to pawn (thanks to cable TV) has it acquired a name — personal asset lending, luxury asset lending or collateral-based lending.
None of the terms is especially well chosen, but that’s what the financial press has decided to go with.
Collateral-based lending, also called personal asset, luxury asset lending, is small but fast-growing, part of the shadow-lending sector that has emerged since traditional credit dissipated after the financial crisis.
The Wall Street Journal estimates it could soon grow to a multibillion-dollar segment, which sounds big but would be trivial compared to the big sources of short-term business money, like commercial paper.
Here’s a typical example of how it works: Let’s say a small general contractor has to make payroll but, for some reason, a progress payment on a project hasn’t come in on time. He needs several thousand or maybe a few tens of thousands of dollars, and he needs it fast.
Banks and other lenders cannot react that fast. Credit cards might work but only if the borrower has a lot left on his credit lines.
Who can give a businessman $25,000 in cash in 15 minutes? A pawnbroker can. If the businessman has a gold Rolex, or something similar. A safe deposit box of gold coins will do. Even a stamp collection, although it would likely take more than 15 minutes to value that.
Now, let’s say our general contractor also does not want to be seen handing his Rolex across the pawn counter. People might talk. At Kamaaina Loan, we have him covered.
Call 242-5555, explain you want to do a “luxury asset loan” and we’ll open our Private Transaction Room, which is accessed via a private entrance well away from the pawn entrance. We’ll even send a limousine to bring you and your Rolex (diamond tennis bracelet, Krugerrands etc.) to us.
“Small business owners are not willing to extend themselves further into debt without more assurances of an economic recovery and stability,” says Paul Aitken, CEO of personal asset-based lender Borro Inc., in a press release, noting that small business borrowing has continued to decline. “The macroeconomic picture shows indications that the recovery should be on its way, but small business owners don’t share that same sentiment. “The consequence of accumulating too much debt has become more than people are willing to accept,” he adds. “Personal asset lending continues to be a favorable option as it avoids the potential pitfall of damaging credit scores.”
As with all pawn loans, we don’t care what your credit score is. Your Rolex is good enough for us.