Countries go to World Bank. The rich go to Citibank. The poor, the desperate and the rushed visit Sam Rosenfeld.
A Reseda pawnbroker for six years, he makes loans faster than the Home Shopping Network sells cubic zirconia. Almost any collateral will do. Jumbled in a single display case at his store are 14-inch buck knives, barbers' tools and an assortment of used bayonets offering a short history of war. Two dozen guitars are strung from his ceiling. A rack of rifles hangs in the back. Jewelry sparkles everywhere.
He offered $15 for a reporter's wedding ring. "Only 14 karat," he said, apologetically.
The $15 would be a loan, payable in one to six months at 80% annual interest, a rate set by the state. The rate is high, but consider: If repaid in one to 90 days, the interest only amounts to $3. And what bank will loan $15, much less approve the application in less than five minutes?
It's one of those businesses that seems to endure all trends and twists of economic fortunes. In the San Fernando Valley, in fact, pawnbrokering is growing. When Rosenfeld started Collateral Loans Inc. six years ago, his was the eighth pawnshop in the Valley. Now there are at least 14, including five clustered around the intersection of Van Nuys and Victory boulevards in Van Nuys.
"It's not much better than any other business: about 10% to 12% return after all the payments are done," said Sam Greenberg, millionaire owner of Sam's U-Drive and co-owner of a pawn shop, Loan Mart in Van Nuys. "But still, if I was just starting out, I would open a pawnshop. It's a very interesting business--a great 'story' business."
Some stories are less poignant than others. "We had 400 wedding bands one week," Greenberg said. "I thought, 'Oh, oh--all the heartbreaks in those rings.' We had them all melted down."
Loaning, buying and selling are the three ways pawnshops create income. In a big, established shop that has $200,000 to $500,000 in loans outstanding, said Mitch Dubbs of Mitch's Pawn Shop in Van Nuys, interest pays the bills, while sales of smartly bought items make the profit. Small loans remain the foundation of the industry. Las Vegas, not surprisingly, has more pawnshops per capita than any city in the nation.
Basically, Dubbs said, a shop tries to loan 25% of the amount for which it can sell an item, buys for 50% of its estimated sale value, and hopes to sell it at 100%. A Rolex watch purchased for $5,000 at Tiffany's five years ago might be worth $2,500 today. So a pawnshop might loan a customer $500 to $1,000 on the watch, or buy it outright for $750 to $1,000.
If the pawn ticket--or loan agreement--is not redeemed in six months, a pawnbroker must warn the customer in writing that he has 10 days to come up with the money or lose the item. Dubbs said only about 10% leave behind what they pawned.
State Sets Rates
Loan rates are set by the state on a sliding scale. On a $500 loan, for instance, the state requires a shop to charge 26.7% annual interest--or $77.80 for six months. On a $2,000 loan, the rate is 20.32%; for $5,000, 15.33%; for $9,500, 13.75%, or $762.13.
But Rosenfeld, a 55-year-old from New York who wears his long gray hair in a ponytail, points out that normal merchandise markup at a department store can be 100%, in jewelry stores 500%. "So if the markup on our product, money, is only 30%, is that really so good?"
Credit cards offer much lower interest rates on small loans, a fact that worries Rosenfeld.
"They give people the ability to obtain cash quickly, which is the traditional reason for pawnshops to exist," he said.
And yet, Denis Hooker, president of the Collateral Loan and Second-Hand Dealers Assn., is not worried about this challenge to the industry. He sees pawnshops as the last refuge of the go-getter unbacked by venture capitalists.
$70,000 in Overhead
"It's a mom-and-pop operation," said Hooker, who operates a shop in San Jose. "Almost every other business is prodigiously dominated by large corporations. If you open a grocery store, how do you compete with Lucky? If you open a burger stand, how do you compete with McDonald's?" To establish a shop, brokers pay about $3,200 in taxes and permit fees, and need about $60,000 to lend and $70,000 to cover first-year overhead.
The pawnshop business mirrors wider economic trends. In recessions, loans surge whereas sales of items drop. No matter what the economic climate, however, a pawnshop's clientele is varied.
"We do business with judges and bankers," said Hooker, who noted that the two most frequently pawned items among such customers are diamond rings and firearms. "They'll say they want to keep it confidential, or they need the money quick," he said. "It's fast, and there's no credit check."
Some customers use pawnshops, which normally have elaborate security systems, as a depository.
Considered Safe Depository