If you don't need a loan, getting one shouldn’t be too much of a problem. According to the Small Business Administration, large business loans (in excess of $1 million) increased by 5.8%, up from negative levels the previous year.
But the same study, released by the SBA in July, found that the number of small business loans -- those under $1 million -- dropped 5% last year, with a $45.3 billion decrease in value, or 6.9%.
Though the Biz2Credit Small Business Lending Index for October 2012 pegs small banks lending approvals at 50.1%, an increase of 2.5%, a paltry 14.8% of funding requests were approved by big banks.
A six-month study by Biz2Credit of small businesses rejected loans by their existing banks identified Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), TD Bank USA (TD), and PNC Bank (PNC) as the institutions most likely to deny funding applications.
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"Small business owners have been saying for quite some time that big banks have been unwilling to lend to them. This survey proves it," said Biz2Credit CEO Rohit Arora. "The big banks ($10B+ in assets) on this list frequently reject the funding requests of their own customers."
One solution? Pawn shops.
As one London pawnbroker told the FT back in 2009, "The number of people coming to us to keep their own little businesses afloat has risen dramatically." And, according to Todd Hills, CEO of online pawnshop Pawngo.com, the pawn industry is stepping in to do what banks won't.
"I don't want to say we're competing with banks, but we are definitely filling a gap that now exists," Hills tells Minyanville. "Banks aren’t interested in loaning a small business owner twenty grand because of all the hassle they have to go through; it's easier to borrow a million dollars than ten thousand."
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Hills says there are "a percentage of people using traditional brick-and-mortar pawn shops who have hundred-dollar problems. Then are are people using high-interest payday loans, who have anywhere from five-hundred to thousand-dollar problems. From a thousand dollars on up, there’s no one home to solve their problems. That’s where we come in"
While the underlying concept is the same, there are marked differences between the online pawn model and the local pawn shop most of us know.
"87% of our customer base has never been inside a pawn shop," Hills explains. "They've never had any dealings with a pawn shop; they went once in college maybe, but as adults this is not something they have done."
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And even as the industry has "done a pretty good job of cleaning itself up over the past 20, 25 years," Hills says the online method "has less of a stigma, the service falls more in line with a small businessperson's everyday lifestyle."
"You take your asset to FedEx and ship it; it’s more comfortable than going and seeing a pawnbroker face-to-face in what is often not a very nice neighborhood," says Hills.
Satisfying a Different Set of Needs
Other than small business loans, Pawngo customers tend to be solving specific sets of issues: medical emergencies, college tuition, taking care of an elderly parent.
"Obviously, I get a lot of flak about this business, and my comment back is, 'What's wrong with borrowing against your past?'" says Hills. "I think it's a much smarter decision to borrow money against something that you own, rather than leveraging your future. If you don't pay us back, we don't foreclose on anybody's house, we don't repossess your car, we don't send bill collectors after you. We sell the item and you move on with your life."
Given Pawngo's relatively upscale customer base, roughly 85% of those using the service repay their loans, compared to the industry average of 70%-75%. And servicing, say, the small business owner who needs to make payroll, Hills sees a much different type of item coming through the door.
"In the brick-and-mortar pawn shop business, all day it's 'How much do you want for your TV? How much do you want for your Skil saw?'" he says. "But here, when the FedEx truck rolls in, you never know what you’re going to get."
Some of the items he's gotten have included a guitar once owned by Jerry Garcia, an Olympic torch, and a bottle of 1980 Dom Perignon Champagne. But the one item that he'll never forget came to Pawngo courtesy of the 1977 Playboy Playmate of the Year.
"The first thing she sent in was a beautiful watch that turned out to be fake, so we couldn't help her on that," Hills says. "I was on the phone with her and asked if she had anything else. She said she had a jewelry box that Hugh Hefner gave to her -- though I probably can't describe it in PG-13 terms, but let's just say she's sitting on a bench at the Playboy Mansion, and Hef is in his traditional robe, down on his hands-and-knees, with his head between her thighs.
"We'll be talking about that one at the Christmas party."
Pawngo is the official online partner of Pawn Stars, the History Channel's top-rated series. Find them at Pawngo.com and PawnStars.com.