Why business is picking up for high-end collateral lenders

Why business is picking up for high-end collateral lenders

One of the interesting, and potentially market-changing, stories to come out of this current recession is the creation of high-end pawn operations, or what some people in the business prefer to call “collateral lenders.”

“Never before have we seen so many affluent individuals coming into our shop with the high-ticket items,” Jordan Tabach-Bank, CEO of Beverly Loan Company in Beverly Hills, told CBS News in 2008, as the recession deepened. “We have lawyers, accountants, doctors, investment bankers.”

Unlike a regular pawn shop, these specialty firms take loans against luxury items like jewelry, works of art, classic cars and vintage wines.

And Tom McDermott, general manager-USA for Borro, says his company is more like a private bank than a pawn shop. “It’s providing liquidity to sell items and give advances against those assets that would-be pawn shops wouldn’t be able to have the capital for,” he said.

Borro also started in the midst of the recession, in London in 2008, and was launched in the U.S. in 2012. You might think the company’s business would slow down as the global economy recovers, but McDermott says business is booming.

“Since we’ve launched the company we’ve loaned about $115 million in loans,” he notes. “Last year we did around about $50 million in lending, and this year we’re on track to hit $100 million.”

What has changed is the type of individuals attracted to firms like Borro. McDermott says half of his company’s customers are asset-rich but cash-poor — people who are, or were, well-to-do, have something of value and are facing short-term liquidity issues.

But the other half is made up of entrepreneurs and small business owners who need a sudden infusion of cash for their operations.

“Increasingly, we’re seeing people come in and use the capital that we lend, or give them against a sale, to use in a business opportunity, not just solve a financial crisis,” McDermott said.

Read the full article at CBS News

About the Author:

Jay wrote about luxury asset trends for Borro Private Finance