Can bad times be good for business? Indeed. Pawnshops are thriving in this recession, even branching out to a new clientele.
"We've had a huge increase in the number of loans we've made. Seeing a lot of people we don't usually see," says Tal Shmargal, manager of Collateral Lender of Beverly Hills Inc. "Banks just don't give out ready cash."
"More people are borrowing money," agrees Elliott Salter, 27-year proprietor of West Hollywood's Elliott Salter Gives Instant Loans. "And customers I used to see when they were between jobs or something, I now see a lot more regularly."
Like banking, pawnbroking is strictly regulated. Loan terms and interests rates are prescribed--the standard term is 4 1/2 months, accruing interest at about 12%. Every transaction must be reported to the police. Unlike banks, however, most pawnshops require no credit checks, just collateral and verifiable identification. Most advances go out within an hour. Even the largest--$100,000 cash on a 1990 Rolls-Royce, for example--are negotiated the same day. And most pawnbrokers allow loans to be repeatedly rewritten--"rolled over"--as long as interest is paid.
"I loan 50% of market value on some items, 5% on others," Salter says. "On something like a gold coin I might loan 75%."
In a recession, that kind of easy cash can be hard to resist.
"More people are coming in for more money," says Shmargal. "Small- to medium-sized business owners, restaurant and building owners, small manufacturers. To meet payrolls, pay supplies, cover checks. At our location, we see a lot of Beverly Hills people who are rich but cash-poor bringing in valuables. Rolls-Royces. Mercedes. Ferraris. And big diamonds."
"The people who are borrowing are more upscale now," says Salter. "I'm loaning on a lot more Corvettes and Rolex watches."
But loans account for only half of a pawnbroker's business.
"Our merchandise prices are cheaper than other stores," says Shmargal. "We're seeing a lot of people who would never have shopped in a pawnshop before."
"People are more concerned now about getting their money's worth," Salter notes. "They're willing to buy things used. There's a way of thinking: that the most valuable things are old. Like cars. Art. Cameras. Jewelry."
"People used to think pawnshops were like drug dealers, or that they were only in bad parts of town," says Shmargal. "But with the economy the way it is, people have turned to pawnshops and found that it's easy. And it's OK."
"Pawnbrokers are still the same old sleazy lechers to a lot of people," Salters says. "They come in apprehensive. But by the time they leave, they've changed. Relaxed. They're thinking, 'This wasn't as bad as I thought.' "