Don't Call It a Pawnshop: Where the Rich Go for Quick Cash
Paul Aitken, founder and CEO of Borro, doesn't like to refer to his company as a pawnshop.
"We're more similar to a private bank than a pawnbroker," he says in response to the "p" word.
Still, the business model is akin to that of a pawnshop: People who need quick cash come to Borro with valuables and put them up as collateral for a loan. When they're ready to pay back the loan, they get their items back.
But you won't see anyone bringing in their old guitar from college so they can borrow a hundred bucks to get through to their next paycheck. Instead, Borro offers loans that range from $1,000 to $1 million, and its clients are more likely to pawn a piece of fine art or a classic car and walk out with a five- or even six-figure loan.
Yes, the rich have cash-flow issues too.
"[Our clients] are high risk-takers -- they're self-employed or entrepreneurs, so their incomes are fairly erratic," says Aitken. "They're people who often have opportunities that need to be jumped upon quickly."
A typical Borro client, then, might be a serial entrepreneur who needs quick seed money for his next startup and decides he'd rather pawn a painting than try to sell assets or secure venture capital funding. One testimonial comes from celebrity tailor Michele Savoia, who used a classic motorcycle as collateral for a $5,000 business loan.
A full-time staff of appraisers evaluates Items, and clients can rest assured that their prized possessions will be taken care of: The company contracts with specialized facilities to store cars, wine and fine art, and will even polish jewelry and watches in its care.
Borro's success -- it has made loans totaling $75 million in the four years it has been in operation -- shouldn't come as any great surprise. The economic downturn has squeezed individuals and families who might not otherwise consider pawning, and banks aren't as liberal with their lending as they used to be. Meanwhile, the popularity of the History Channel's Pawn Stars has helped the practice enter the mainstream.
Taking advantage of this new normal have been online pawnbrokers like Pawngo, which serves up loans averaging $2,000 to middle-class clientele.
But if Pawngo is the destination of choice for the average family willing to hand over a modest jewelry collection or a nice watch to get a few thousand dollars, Borro is very much the choice of high rollers and upper-middle-class families. Here are a few of the items that Borro clients have put up for collateral, along with the loan amount:
Maserati Gran Turismo: $15,000
1 KG bar of gold bullion: $30,000
Case of 1989 Chateau Petrus wine: $23,000
14-ct diamond ring: $75,000
Custom 1958 Harley motorcycle: $5,000
Borro isn't the only pawnbroker targeting high earners: New York's Provident Loan Society offers loans up to $100,000, and Beverly Loan Company in Beverly Hills, Calif., bills itself as an "upscale collateral lender."
But even high rollers should be aware that the interest rate they'll pay on the loan might be tough to swallow. Borro offers interest rates of 2.99 percent to 3.99 percent per month, with a typical loan period of six months. In addition, fees to cover appraisal and other logistics range from 5 percent to 7 percent.
By way of comparison, credit card expert Beverly Harzog notes that that the average credit card carries an interest rate around 2 percent per month on a cash advance, and a transaction fee of about 3 percent to 5 percent.
That said, your credit limit might make it tough to swing a five-figure loan. If you've got good credit, another alternative is a personal loan from a bank, which Harzog points out has a much better rate.
Still, Aitken says, Borro's clients like the speed and simplicity they gain by skipping the bank.
"There's complexity in dealing with the bank, and a big time lag," he says, noting that the appraisal process is completed within a day.
Whether that speed and simplicity is worth the rate is up to you. But we suppose if you're rich enough to have a house full of expensive art, fine wine and classic cars, you might not care if you're paying a little bit more in interest.
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.
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