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Entrepreneurs turn to pawnbrokers as banks tighten business lending

August 21, 2024

With traditional banks tightening their lending criteria, a growing number of UK entrepreneurs are turning to pawnbrokers to secure vital funding.

H&T, Britain’s largest pawnbroker, has reported a surge in small business owners, including shopkeepers and builders, pledging personal jewellery and watches to obtain loans.

Chris Gillespie, CEO of H&T, which operates 282 stores across the UK, highlighted that many small business owners are finding it increasingly difficult to secure loans from traditional banks. This has driven them to seek alternative financing options, with pawnbroking emerging as a popular choice. “We’ve seen a noticeable increase in shopkeepers and builders using our services due to the lack of funding from other sources,” Gillespie said.

These loans are often used to cover essential business expenses such as purchasing stock, buying materials, or even paying VAT bills and wages. Gillespie noted that a significant portion of H&T’s customers come from ethnic minorities, particularly the Asian community and Eastern Europeans, who are more familiar with pawnbroking as a mainstream financial practice.

The average item pledged to H&T is valued at around £200, with loans typically being less than that amount. However, there has been a noticeable increase in larger loans, with approximately 18% of H&T’s loan book now consisting of loans of £5,000 or more. Entrepreneurs are increasingly pledging high-value items such as Rolex watches and expensive jewellery to secure these larger sums.

“The banks are more reluctant to lend than they used to be,” Gillespie explained. “They won’t lend you money against your watch and often require personal guarantees or charges on your house. Overdrafts are also harder to come by these days.”

This shift follows years of tighter lending criteria from banks, which have moved away from riskier, unsecured lending in favour of more straightforward business loans. When unsecured loans are available, they often come with stringent conditions that make business owners personally liable for their debts.

The reduction in alternative lending options has also contributed to the rise in pawnbroking. Regulatory crackdowns by the Financial Conduct Authority have led to the closure of several doorstep lenders and controversial payday lenders, pushing more customers towards pawnbrokers like H&T.

H&T’s pledge book rose to £105 million for the six months ending in June, up from £101 million in December. The company’s income increased by 11% year-on-year to £55.8 million, with pre-tax profits up by 12.5% to £9.9 million. Jewellery and watch sales also saw a significant boost, rising by 27% to £29.3 million compared to the same period last year.

Founded 125 years ago, H&T continues to adapt to changing market demands. In response to growing weekend shopping habits, the company is piloting Sunday trading hours in 10% of its stores to meet increased demand.

As traditional financial avenues become more restrictive, pawnbroking is emerging as a lifeline for entrepreneurs in need of quick, accessible funding, allowing them to maintain and grow their businesses in a challenging economic environment.