There's certainly a bit of a stigma when it comes to pawn shops.
Maybe it's the prevailing mental image of a seedy-looking storefront with flickering neon signs packed to the brim with everything from foosball tables to gold dental caps. Maybe it's the stereotypical shop owner who might be trying rip you off.
"It's an industry that people had a perception that you dealt with crackheads or drug dealers and everything was stolen," says Les Gold, owner of Detroit-based American Jewelry and Loan, and star of the hit reality show Hardcore Pawn. "It was a dark, dingy store."
But thanks to a sour economy and heightened exposure of the industry through shows like Hardcore Pawn and The History Channel's Pawn Stars, harsh judgement of the once-shady industry is softening and small businesses are starting to make use of the industry to manage their cash flow. Traditional sources of credit such as small business loans and home equity lines of credit have dried up in the wake of the Great Recession, creating a credit vacuum of sorts, leaving business owners and consumers with few options when it comes to keeping bill collectors at bay during tough times.
"In general [the lending climate] is still pretty tight," says Paul Edelstein, economist at IHS Global Insight. "There was a tightening of lending standards during the crisis that hasn't really improved since then."
That's where the pawn industry comes in. Once looked down upon for its questionable merchandise and the unsavory characters it employed, pawning is now being seriously considered by an increasing number of cash-strapped small businesses who need short-term infusions of cash to keep their businesses humming along.
"There has certainly been a stigma attached to our business, but the pawning industry is booming," says Todd Hills, CEO of online pawn shop Pawngo. "Pawn Stars has popularized and normalized the concept of pawning. That combined with a down economy has drastically increased the demand for the services we have to offer. It's our responsibility to say 'Yes' when the banks say 'No.'"
Since launching the site in 2011, Pawngo has made more than $10 million in loans, with the typical loan running about $2,500 over a 4.5-month period.
Although pawning items through an online firm is slightly different than going through an actual pawn shop, the concept is the same. You give the pawnbroker an item, he gives you an estimate of how much you can borrow against the item, and if you accept the offer, he holds the item for you until you pay back the principal of the loan, with interest of course. If you don't pay back the loan, the pawnbroker keeps your item and sells it, although according to experts, as much as 90 percent of pawn shop customers pay back their loan and reclaim their items.
According to Hills, about 50 percent of the firm's clients are small business owners looking to manage cash flow and keep their doors open as the availability of loans and other lines of credit have become increasingly scarce. Instead of racking up debt on credit cards with astronomical interest rates, more business owners are opting to leverage assets for loans up to $1 million, putting up everything from expensive French wine collections to rare sports memorabilia as collateral.
"The small business owners we work with are borrowing to cover cash flow in their companies," Hills says. "Anything from buying new equipment, repairing old equipment, payroll needs or to cover slow receivables."
With credit conditions not likely to ease up anytime soon, those in the industry are optimistic about the prospects for the pawning industry. Another web-based lending site borro projects it will lend upwards of $10 million this year after expanding from the U.K. into North America in February. According to borro CEO Paul Aitken, the potential for growth in the United States is massive and the company could eclipse hundreds of millions of dollars in loans over the next few years.