Most people think of pawn shops as an alternative source of loans for individuals who are having a temporary problem paying the rent or affording an unexpected expense, like sudden car repairs. However, some pawn shops are starting to work with another type of borrower: the small business owner. If you're a small business owner and you're short on cash, consider this information about collateral-based loans.
A collateral-based loan allows you to avoid negative credit issues.
Collateral-based loans have the obvious advantage of not being dependent on your credit score, which is great if you have problem credit. They're also great even if you have decent credit—you can keep your credit score from being damaged due to a short-term need for quick cash. By working with a lender who will base your loan off your available collateral, you can forgo the step of the normal loan process that pulls your credit report. Every time your credit report is pulled by a lender, your credit score can suffer.
The collateral-based loan also doesn't go onto your credit report. On your credit report, your credit-to-debt ratio will remain the same and the history of the loan won't appear. Even though you intend to pay off the loan within a month or two, the appearance of a small loan during a problem time could lead traditional lenders to worry about your company's overall stability. That could be a problem if you intend to seek a standard bank loan in the near future for the business.
You may be able to use a variety of business and non-business assets as collateral.
If your collateral is a mix of personal items and business assets, it may be easiest to work with a non-traditional lender like a pawn shop. Banks may not allow you to put personal collateral up for a business loan. They aren't equipped to write up a lien against your personal jewelry, for example, and then store it for safe-keeping.
There are a number of possibilities for collateral, depending on the preferences of the pawn shop you choose:
- jewelry, particularly gold or in-demand designer jewelry, both of which tend to hold their value
- musical instruments, including speakers and synthesizers
- high-quality tools, like Swiss-type lathes and power drills
- personal coin collections
- business inventory, if you run a small business that carries a lot of inventory
- office equipment
- heavy construction equipment, like cranes or tractors
It's important to note that not every pawn shop accepts every form of collateral, so you may want to inquire early about the possibilities of using something as collateral for a business loan. Don't be afraid to negotiate. You may be the first client that's ever approached the pawn shop asking to use livestock as collateral. If you can explain how the pawn shop could easily turn the collateral into cash (should you default on the loan), you might have a chance of convincing the pawn shop to make the deal. Contact a company like Elite Jewelry and Loan for more information.