Alternative Lenders See Continued Growth

Pawning off your valuables may seem like an option of last resort when times get tough. But even as the economy improves, high-end pawn startups say business is better than ever.

On Tuesday, U.K.-based startup Borro, which has had a location in New York City since 2012, announced it is opening a new office in Beverly Hills. Borro offers loans for items valued at up to $2 million.

Earlier this year, competitor Ultrapawn spun off a separate pawn and alternative lending company aimed at business owners, called Liquidity, after seeing growing interest from entrepreneurs.

“We’re up 94% year over year in terms of lending,” said Borro CEO Paul Aitken. The company is on track to do $100 million in lending this year, bringing nearly $25 million in revenue. Borro has raised $145 million in funding to date.

According to Aitken, clients are generally in the top 10% of earners in the U.S., and Aitken said a client recently came in with a Monet worth $1 million.

The willingness to pawn off a beloved possession doesn’t necessarily indicate that the economy is still in the dumps. Aitken said the percentage of people who don’t pay back their loans is actually declining and that clients are now using the pawn startup to take bigger risks they might not have taken when the economy was still reeling from the recession.

“People aren’t coming to us in distressed situations. Obviously we have some of that, but for most it’s not last-resort lending,” said Aitken. “A lot of our borrowers are borrowing for opportunistic reasons. As the economy recovers, they’re more bullish, so they’re taking loans out to go after an opportunity.”

Aitken added that many clients are working in sports, media and entertainment – industries where it’s common to be paid irregularly, but in large, lump sums. This client base also explains the expansion to Beverly Hills, he said.

Ultrapawn and Liquidity CEO George Souri said his company is experiencing a high amount of interest from entrepreneurs looking to grow their businesses, but can’t secure traditional financing.

“It’s people who want to take risks and grow, but don’t have the capital to do it,” said Souri. Post-recession, Souri said banks are unwilling to lend to businesses or entrepreneurs with less-than-ideal credit histories, and are also cutting back on lending due to increased regulatory pressures.

“We’ve seen double-digit growth year over year,” said Souri, who said Ultrapawn is currently looking to raise a $5 million Series A, which would be the startup’s first round of institutional funding. He said Ultrapawn has done “tens of millions” in loans to-date.

But despite some of the benefits of using a pawn startup for financing (Borro will deposit funds in 24 hours, while Ultrapawn says it can close loans within three to five days), some experts say borrowers should think twice before heading to an asset-based lender.

“It comes at a very high cost,” said chief financial analyst Greg McBride. “It’s one of the last resorts in a lot of cases, and can be an indicator of financial distress.”

McBride is also skeptical about whether one-percenters will increasingly turn to these lenders to finance new opportunities.

“Truly high-net-worth individuals have other access to cash,” he said.

Read the full article on Fox Business

About the Author:

Jay wrote about luxury asset trends for Borro Private Finance