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June 24, 2011 7:18 pm
Bentleys, Rolex watches and Titanic memorabilia are becoming unlikely cash machines as individuals and small business owners turn to pawn brokers amid the biggest lending drought for years.
Unable to secure short term credit, the well heeled are pledging big ticket items that would normally never trouble an institution once seen as the last resort for the terminally cash-strapped. The volume of high net worth items coming through the doors has nearly doubled since 2008. Pawn brokers have also reported a rise in the average loan size requested by customers.
This week Suttons & Robertsons, a pawnbroking company established in 1770, opened a new store in Fleet Street, located opposite Goldman Sachs.
“We’re continuing to see demand from wealthy individuals increase, that’s why most pawnbroking chains are opening new stores,” said Jim Tannahill, managing director.
Access to credit in the UK remains extremely tight. Small and medium business owners continue to complain that they are being denied bank funding because they are seen as posing a credit risk. Last month lending by major banks to private businesses contracted by £2.5bn.
Unable to meet the ever stricter lending criteria set by banks, more wealthy individuals have chosen to release equity from their jewellery, luxury cars, fine art, antiques or yachts.
Borro, an online pawnbroker launched in 2008, has reported an 111 per cent rise in loans of £20,000 or more provided to customers in the first six months of 2011.
The company recently completed its first £1m loan, secured against a 19th century fine art collection valued at £5m.
Paul Aitken, chief executive, said the increase had come mostly from small business owners and professionals in need of liquidity to exploit business opportunities.
Other pawn brokers cite short term bills or home alterations as typical reasons for high net worth clients to use their services.
TGS Pawnbroker, which previously focused on the lower end of the market, currently has more than 40 upmarket vehicles in its storage facility, ranging from Aston Martins, Bentleys, Porsches to rare vintage cars.
Many owners have opted to release equity from the vehicles during the winter months, when they would otherwise be sitting idly in a garage, and pay off the loan, redeeming the cars, in the summer.
“Our clients are asset rich but they find themselves in the circumstance where they’ve run out of cash for the short term and need it fast,” said Paul Zimbler, operations manager.
Pawnbroking has been a feature of the UK credit market for more than a century and the majority of loans taken out are for small sums of around £100, according to the National Pawnbrokers Association.
Rates are typically between 2 per cent and 9 per cent a month, making it an extremely expensive way to borrow over the long term.
Despite this, Haywood Milton, director of north-west based pawnbroker – Miltons, which specialises in high net worth assets, said sums loaned out across the business had increased by 40 per cent since 2008, and are still growing.
There had been, he said, a large rise in the number of clients who needed to access funds for investment purposes.
For short periods of time, the lack of arrangement fees and speed with which loans can be finalised made the service attractive, he said.
“It’s the difference between trains and taxis. Banks and pawn brokers are useful in different ways.”
Like thousands of small business owners across the country, Paul Thorpe has found it increasingly difficult to access finance from banks in the last three years, Elaine Moore reports.
“In 2009 I noticed a total sea change in the way banks were dealing with small businesses,” he said. “They just weren’t interested in lending.”
Despite owning his Cambridgeshire based business for more than 15 years, and having a relationship with the same bank for more than 27 years, Mr Thorpe found restrictions on lending so severe that the bank was continually turning down his loan applications.
“The business was still profitable and the bank knew us but it’s tough, they aren’t prepared to offer unsecured lending and I don't have the sort of security they they are after. A lot of small business owners are in the same position. We’re missing opportunities to expand and invest because we can’t access the money.”
Unable to find money from traditional sources, Mr Thorpe contacted Borro, an online pawnbroker, and arranged a loan of £20,000 using his vintage watches as security.
Although the loan repayment rates exceeded those offered by banks, the speed with which the loan was arranged, and the fact that he could use a non-traditional asset to secure it, made the service appealing.
After a rate had been negotiated over the phone, a courier was dispatched the same day to collect the watches, which were then valued. Once the valuation was complete Mr Thorpe had access to funds in less than an hour. He has since used the service again, and has redeemed his possessions each time.
“I wouldn’t go to a traditional pawn broker,” said Mr Thorpe. “They have that grubby image and you envisage someone looking down their nose at your belongings.”
He added: “I wouldn’t necessarily feel comfortable that they had the investment background needed to value the assets either. But this service sits somewhere between corporate investment and pawn broker and the immediacy and size of loans available were perfect for a small business owner like me.”
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