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New Breed of Pawn Shops Fills Business Lending Void

By    |   Tuesday, 29 October 2013 12:39 PM

Collateral-based lenders, essentially a new class of pawn shops, are quickly filling a business lending void.

The good news for borrowers is that there's no credit check, little paperwork, and fast approvals. The bad news is that, depending on the state, they can pay annual interest rates over 200 percent, according to The Wall Street Journal.

The lenders base their decisions on the value of the collateral, and ignore credit history and other factors. Business owners needing loans, but who can't get financing from banks or other traditional lenders, offer their prized possessions, valuable artwork, collectibles and jewelry, as collateral in return for loans.

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"If it continues being this hard for consumers and businesses to access credit, we think this can be a multibillion-dollar industry," Paul Lee, a partner at venture capital firm Lightbank, told the Journal.

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.

Laws on interest rates they can charge vary tremendously by state. For instance, New York allows up to 48 percent a year, Texas 240 percent, the Journal reports. Most borrows pay off loans within three to six months.

The new breed of lenders is similar to conventional pawnshops that lend small amounts to individuals. But they work more with business owners, lend much larger amounts, and use much more valuable assets as collateral. They also use websites and corporate offices, allowing customers to apply for loans online and mail assets to lenders.

Traditional pawn shops are jumping on the trend. For instance, Beverly Loan Co., a pawn shop in Beverly Hills, Calif., opened New York Loan Co. in Manhattan, the Journal notes.

"Small businesses needed loans more than ever before," its CEO, Jordan Tabach-Bank, told the Journal. "Our bread and butter is the $20,000 loan to small-business owners who have to meet payroll or inventory demand."

"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."

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Collateral-based lenders, essentially a new class of pawn shops, are quickly filling a business lending void.
pawn,shops,lending,business
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2013-39-29
Tuesday, 29 October 2013 12:39 PM
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