Should you get a small business loan from a pawnshop?

Should you get a small business loan from a pawnshop?

It’s a legacy of the financial crisis that hasn’t quite faded away: Banks are still hesitant to loan to small businesses, constraining the growth of a part of the economy lionized by politicians and the public alike. While these businesses often rely on credit cards to finance operations and expansion, that’s a risky strategy, given that they still don’t have the legal protections against fees and unannounced changes that were extended to consumer cards in 2009.

Could pawnshops be a good alternative?

More banks are tightening commercial credit these days. (St. Louis Fed)

It’s difficult to assess the degree to which small businesses have started to rely more on pawnshops, since the National Pawnbrokers Association doesn’t collect data on the nature of their borrowers. But the industry has started to expand into financial services and higher loan amounts, with a burgeoning client base of people whose credit histories make them ineligible for traditional loan products or who don’t have bank accounts at all. And a couple of outfits say they’ve noticed more small-scale enterprises turning to pawnshops when they need to bridge an immediate cash crunch.

“We’re seeing a lot more high-dollar amount loans, and different types of people walking through the door,” says Yigal Adato, co-owner of 10-year-old CashCo Pawn, which has three locations in California. “Before, we’d see people in a certain economic state. Now we’re seeing a lot more people in suits, because they need to start their business, or extra money to close the deal.”

Jordan Tabach-Bank is in the high-dollar pawn sector, with a shop in Beverly Hills that’s served the entertainment industry since 1938. He recently opened a store in Manhattan, and says he’s seeing more business loans there, as well.

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