Some U.S. pawnbrokers are taking liquid assets — literally.
Fine wines are among the items they will accept as collateral for loans, along with family jewels and fine art, as a practice common in Britain and France catches on across the Atlantic.
Liquidity issues, or a cash shortage, can be found on most rungs of the economic ladder, the pawnbrokers said.
"You'd be amazed by how many wealthy individuals have terrible credit ratings. And besides, if you go to a bank, it can take weeks or months to get a loan. When we make a loan, it's usually the same day," said Jordan Tabach-Bank, head of Beverly Loan Co.
In an office above a Bank of America Corp. branch in Beverly Hills, California, home to some of Hollywood's biggest stars, the pawnshop for the prosperous regularly lends to hedge-fund managers, bankers, lawyers, doctors — and occasionally to Oscar winners.
"Most people have a vision of pawn shops as sad sites. But that's not the case here," Tabach-Bank said. "I have a lot of people who come in who have a business opportunity and they need an infusion of cash for business purposes," he said.
USGoldBuyers.com, an online pawnbroker with an office in New York City's diamond district, will also accept fine wines as collateral, spokesman Jose Caba said. While the wealthy like their "expensive toys, unfortunately, sometimes they don't have the liquid assets so to speak, to keep up their toys. That's where we come in."
"We don't really want to sell the wine, or any asset that we take in whether it be gold or fine art," Caba said. About 90 percent of the loans made have been repaid, he estimated.
Interest rates and length of the loans vary widely.
A British-based pawnbroker, borro.com, with an office in New York recently lent $120,000 in exchange for 128 bottles of Chateau d'Yquem. The golden Sauternes were actually worth an estimated at $250,000.
Within the last three weeks, borro.com had taken a case of 1989 Chateau Petrus, valued at about $38,000, for a loan of $24,000, said Chief Executive Paul Aitken.
He then listed several other loans that were secured with various vintages of the five First Growths Bordeaux: Chateau Haut-Brion, Chateau Lafite-Rothschild, Chateau Haut-Brion, Chateau Margaux and Chateau Mouton Rothschild. These top wines are regularly sold at auctions where cases fetch tens of thousands of dollars.
His clientele, whose net worth ranges from $1 million to $10 million, use the loan "for liquidity — no pun intended. They're mostly small business owners who basically are just waiting on payments and managing cash flows."
Financial advisers and wealth managers recommend many of their clients to him, Aitken said.
There are three publicly traded U.S. pawnbroking companies that operate in Canada, the United States and Mexico. None takes fine wines as collateral, "though it is an interesting business model," said Tom Welch, general counsel for EZCORP Inc, which has 670 storefronts.
Prime Asset Loans, based in Durham, UK, has a specific list of wines it will loan against. In addition to the First Growth Bordeaux, it will also make loans on Burgundy's famed Domaine de la Romanee-Conti and, depending on the vintage, Australia's renowned Penfolds Grange.
"We lend up to 70 percent of the value of the wines and the term is usually seven months," said Richard Mews, a partner at Prime Asset Loans. "Investors are using this type of loan more as it is quick, easy and there are no fees. ... If used properly, it can be a very cheap way of raising short-term funds."
Credit Municipal de Paris, has been offering loans against fine wines, champagnes and aged spirits since 2008, said Florence Marambat, a spokeswoman for France's oldest bank. It can keep more than 90,000 bottles in its 18th century wine cellar.
"Just deposit your bottles against a loan that is immediately awarded," she said, adding the cellar is fully secured and its humidity and temperature optimal. And to reinforce the supremacy of the region, she said Bordeaux were the wines most frequently offered as collateral.
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