Economic woes boost business at pawnshops

When the economy sours and gold soars, there's one business segment that actually sees more traffic coming in the door. Welcome to the world of pawnbrokers.

Amid the economic queasiness surrounding housing, jobs and credit, local pawnshop owners are seeing evidence that more money-strapped customers are dropping off their valuables to get fast loans or unloading their gold for a quick windfall.

"The demand for loans is way up, because the economy stinks," said John Appelbaum of Sacramento Loan and Jewelry Inc. in Sacramento.

"We're the grass-roots economic indicator. We see it right off the street," said the veteran pawnbroker, standing amid glass cases containing dozens of customers' musical instruments and loads of their silver and gold jewelry.

"The myth is that people who come here are down and out, but it's also the person with money," said Appelbaum, who's been in business 36 years. "We get people needing to borrow $15 to (needing) thousands," he said, noting that the number of loans on his books last year was up more than 10 percent from 2006.

Given their ability to offer quick, cash loans with no credit check and little paperwork required, pawnbrokers are often closest to the worries of everyday life.

For years, pawnbrokers have been the go-to lender for small, quick-turn loans by those who are turned away by conventional banks, said Richard Cohn, spokesman for the Collateral Loan and Second Hand Dealers Association, which represents about half of the 499 licensed pawnbrokers in California. Tough times have reinforced that relationship, he said.

On a typical loan, a pawnbroker accepts an item as collateral and pays out cash up to 50 percent of the item's estimated value, if it were to be sold. Most loans are for 120 days. Regulated by state law, pawnbrokers charge set rates for interest and service fees. If the pawned item isn't reclaimed and the fees and original loan paid, it becomes the pawnbroker's property and put up for sale. According to national pawnbroker statistics, about 80 percent to 85 percent of pawned merchandise is reclaimed by its owners.

The economy's downturn appears to have speeded up loan activity statewide, Cohn said, though precise numbers are not available.

Out in suburban Sacramento pawnshops, the flood of pawned construction tools bears evidence of the area's protracted housing slump.

"You can usually tell (how) the economy (is doing) by how many tools we get in," said "KC" Carvalho, of Carvalho's Loan. "We now have more tools than we've ever had. Ever."

Carvalho has devoted an entire section of his store to tools brought in by idled construction workers, from air compressors to heavy-duty drill sets.

Nationally, "we're seeing more loans - three- to four-month loans are on the rise," said David Adelman, president of the Texas-based National Pawnbrokers Association, which represents a portion of the 13,000 pawn shops nationwide. But he said he was uncertain what had caused this. Many pawnshop customers are regulars for whom such loans are "a way of life," he said.

According to the national association, pawnshop business typically picks up with spikes in gas and energy prices but settles down once customers adjust to higher rates.

The demand for loans can put financial pressure on pawnbrokers. In tough times, they need lending cash, too, but banks often are reluctant to extend them capital, Cohn said. If pawnshops don't have enough to lend, customers can go elsewhere for quick loans and discounted goods.

Pawnshops aren't the only ones who are seeing an uptick in customer walk-ins. The recent spike in gold prices coupled with fears of inflation have brought gold traders into stores like Bill Dunbar's, a retail gold and jewelry business.

Dunbar, owner of Marconi Coin and Jewelry Exchange in Carmichael, Calif., is seeing more hedge-seeking investors buying gold bullion coins - U.S. American Eagles, Canadian Maple Leafs, South African Krugerrands - as protection against inflationary times.

But he's also seeing more troubled homeowners coming in to unload their gold jewelry while bullion's price is skyrocketing.

"They're trying to cover their houses. They're trying to cover their kids in college. You've got this credit card thing. People are in trouble," said Dunbar.

On a recent Friday, Dunbar had back-to-back appointments with several customers who were either selling gold chain necklaces or buying gold coins.

Those with gold are cashing in. "It's a seller's market," Dunbar said, pulling out a tray of used gold jewelry - chains, bracelets and a 22-karat gold Omega watch - that were for resale.

"Gold tells," he said. When its price starts climbing, "there's a good chance a (financial) storm's on the way."

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)