A Pawngo employee checks a watch to ensure its authenticity.
NEW YORK (CNNMoney) – Squeezed by the credit crunch and tempted by record gold prices, small business owners are finding an alternative to banking: the pawnshop.
More than half of online pawnshop Pawngo’s customers are small business owners, said Todd Hills, CEO of the Denver-based company.
“These guys can’t wait. They have businesses. They have employees they have to pay,” said Hills, who launched Pawngo in June. “It’s a great way to meet a short-term need.”
Pledging is a relatively simple and hassle-free process, especially compared to obtaining a bank loan. A customer brings an item of value – such as gold, jewelry, or electronics – to a pawnbroker and gets a loan based on the value of the item. As with a bank loan, the customer pays interest. Once the loan has been repaid, the pawnbroker returns the item to the customer. If the customer cannot repay the loan, the pawnbroker keeps the object, with the aim of reselling it to recover the loan amount.
With pledging, there are no inquiries, credit checks or credit reports if the customer defaults on the loan. “You can always take your stack of papers to the bank, it doesn’t guarantee you’ll get a loan,” Hills said.
While individual consumers may walk into a pawn shop with a few hundred dollars worth of jewelry in search of cash to fill the gas tank or the fridge, small business owners tend to come in with more expensive items. , said Ray Shaffman, a salesman at Gables. Pledge and jewelry in Miami.
Gables Pawn and Jewelry has seen customers come in with watches made by Rolex, Cartier and Patek Philippe. He pays between $5,000 and $10,000 each for them, Shaffman said.
“Making payroll is the number one reason” small business owners come to the store, Shaffman said. “They don’t have enough flow, enough cash to pay their employees. And they have to pay their employees. Otherwise, they have much more complicated problems.”
Shaffman noticed an increase in the number of customers pawning their gold about a year and a half to two years ago. He said that about 70% of customers pawn their gold because they need the money; while the remaining 30% are attracted by the high price of gold.
There are approximately 10,000 pawnbrokers across the country. The combination of tight credit, high gold prices and increased industry awareness has attracted more middle class customers, affluent customers and small business owners. “The pawnbrokers industry is really going through something of a renaissance over the last two years,” said Emmett Murphy, spokesman for the National Pawnbrokers Association.
No other options: Some business owners turn to pawning their valuables because they have no other choice.
“We lost a trillion lines of credit cards. We lost a trillion lines of home credit. And those are — or were — the two biggest sources of funding,” said Bob Coleman, the publication’s editor. of the small business lending industry. , “Coleman Report”. “There are different things filling that void until the banks ramp up.”
Fabian Videla, the owner of Slim Protein in Jacksonville, Florida, went to Pawngo after he ran out of savings and when a bank wouldn’t lend him.
“By the time I contacted them I was kind of out of options and this was a good one,” said Videla, whose company sells a weight loss program.
Videla pawned two diamond rings — his wife’s engagement ring and one of his rings which was a gift from his wife — for $7,000. The loan had a monthly interest rate of 6% for three months, or $420 per month. “Pawngo loans aren’t cheap, but the cost of doing nothing, and waiting for something to fall into your lap, could cost you your business,” Videla said. He intends to repay the loan and get the diamond rings back.
If a small business owner is in a bind, pawning valuables can be a legitimate option, Coleman said. “It’s definitely not a recipe for long-term success,” because the loans are too expensive.
It’s also better than using credit cards to fund your business. This option can aggravate an entrepreneur’s indebtedness. With pledging, “the worst case scenario is that you lose your assets,” Coleman said.
The high price of gold: While some small business owners are turning to pawnbrokers to keep their business afloat, others are turning to them to profit from soaring gold prices.
David Scantling, president and CEO of angel investment firm Scantling Technology Ventures, in Akron, Ohio, watched the price of gold soar to record highs and realized that his gold reserve could be transformed into a considerable sum of money which he could invest in his Business.
Scantling’s first thought was to sell his gold. But decided against it, as he didn’t want to lose it and pay huge capital gains tax.
“I would rather just keep my items and take out a loan,” Scantling said. “It was an attractive way to get cash out of those assets without having to sell them at that exact moment.”
He shipped a combination of gold coins and jewelry to Pawngo on a Friday, and by Tuesday morning he had a loan of just under $20,000 in his bank account. He must pay a monthly interest rate of 5%.
Scantling said he didn’t mind the heavy load. The convenience of the transaction and the fact that he won’t have to pay capital gains tax makes it worth it.
“I feel like my capital gains tax would be higher than the interest I would pay on a 30 or 60 day loan,” he said.
First published: August 2, 2011: 9:46 a.m. ET