Pawn Brokers See Up Year in Down Economy

Located for the most part in low-income neighborhoods, where they deal in low-value transactions, pawn shops usually are considered fringe participants in the financial sector.

But as the slumping economy wears away at people’s finances, more middle-income customers and even some small-business owners are turning to pawnbrokers for capital.

“We’ve always worked with a diverse group of people, but now we’re seeing more activity across all demographics,” said Hal Greenspan, who owns Century Pawnbroker Inc. in Asbury Park, and also has pawn shops in Keyport and Lakewood.

“Customers don’t have to tell us about themselves, but some like to talk. So we are hearing more about small-business owners that need to put up antiques and other assets for cash to meet payroll or to pay suppliers,” Greenspan said.

With their customers taking longer to pay their bills, “small businesses are running short of cash, and can’t get money from their bank,” Greenspan said.

In a typical pawn shop deal, a customer will put up a watch, jewelry or other “hard” asset as collateral for a six-month loan of $100 or so. The customer gets the goods back after the loan is paid; if they default, the pawn shop takes title and can sell the goods.

Many pawn shop borrowers make interest-only payments — at rates up to 3.7 percent a month, according to state Department of Banking and Insurance regulations — and then roll the loan over when it comes due.

The carrying cost may be higher than a bank loan or credit-card charge, but it can be a lifeline for people who don’t have access to credit lines or other funding sources.

Pawn shops suffer from an image problem, because most people don’t understand their operating concept, said Irwin Sablosky, president of William S. Rich & Son Inc., a Newark pawn shop that has been operating since 1890.

A typical pawn shop customer has a household income of about $29,000, according to Dave Adelman, who owns an Atlanta pawn shop and is president of the National Pawnbrokers Association.

Across the nation, pawn shop owners say business is rising as people lose their jobs, according to Adelman.

“Many of these people don’t have a bank account, and they can’t get credit cards,” said Sablosky, who also is president of the New Jersey Pawn Brokers Association trade group.

“Basically, we’re offering asset-based financing. But instead of letting the customer retain the asset and then repossessing it if the borrower defaults, we hold the goods from the time the loan is made,” Sablosky said.

There’s another crucial distinction, he said, noting that many banks got burned because they made loans secured by real estate that was appraised at sky-high values. When the housing market stalled, there was little, if any, cushion for error.

“We’re very conservative with our loans,” he said. “We don’t want to repossess the goods. I’d say about 80 percent to 90 percent of our customers come back and redeem their collateral.”

In fact, while banks typically loaned 80 percent or more of a home’s appraised value, pawn shops rarely loan more than 60 percent of the wholesale value of the goods, or the price they could get from another pawnbroker, Greenspan said.