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SUNDAY, JANUARY 14, 2007
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Ben Gutherie tries on rings that Mike Hall is selling at Beltline Pawn & Jewelry. Most pawnshops are two businesses in one. They are a lending business, which includes an area for maintaining the collateral, and a retail business. The retail store is necessary to the business model because that’s how the pawnbroker converts unredeemed merchandise into cash.
Daily photos by John Godbey
Ben Gutherie tries on rings that Mike Hall is selling at Beltline Pawn & Jewelry. Most pawnshops are two businesses in one. They are a lending business, which includes an area for maintaining the collateral, and a retail business. The retail store is necessary to the business model because that’s how the pawnbroker converts unredeemed merchandise into cash.

Redeeming pawns
Although much maligned, shops serve economic need

By Eric Fleischauer
eric@decaturdaily.com · 340-2435

A penny for a spool of thread,

A penny for a needle,

That’s the way the money goes,

Pop! Goes the weasel.

In its original form, the nursery rhyme had nothing to do with furry animals but everything to do with a business that has changed little in thousands of years: pawnbroking.

In the rhyme, the term “pop” means to pawn, and a “weasel” is a shoemaker’s or spinner’s tool. The shoemaker who spends too much on his needle and thread (or too much on visits to the pub, as noted in other verses) must pawn his weasel and thus lose his ability to do his job.

Jason’s not a shoemaker, although he admits to hitting a pub now and then. He recently was diagnosed with cancer and, because of its symptoms, lost his job. He was about to lose his apartment, which was why the man — who asked that his last name not be used — was pawning his top-of-the-line electric guitar.

Questions of economic morality have always surrounded pawnshops. Britain — the source of the “Pop Goes the Weasel” ditty — began regulating pawnbrokers in the early 1800s. Those early regulations are not much different than the ones set forth in the Alabama Pawnshop Act.

Alabama limits pawnbrokers to 300 percent annualized interest on loans, and takes steps to reduce the use of pawnshops as an outlet for stolen goods.

Jason had no gripes with the system. He said he could get more money for his guitar by selling it, but he wanted the ability to redeem it when some money arrived in a couple weeks.

A few of the guns on display at Beltline Pawn & Jewelry.
A few of the guns on display at Beltline Pawn & Jewelry.
He couldn’t get a bank loan, he said, and even if he could it would be for more money than he needed and for a longer term. He needed a couple of hundred bucks for less than a month, and a pawnshop was the least painful way to get it.

“We perform an important service for people like that,” said Mike Hall, an owner of Beltline Pawn & Jewelry. “Banks are not always an option.”

Pawnshops have been around for thousands of years. Now as then, the basics are simple. A borrower brings an item of value to the pawnbroker and entrusts it to him in return for a loan.

Within 30 days, the borrower may redeem the merchandise by repaying the loan plus an additional 25 percent. If he fails to redeem the merchandise, the pawnbroker owns it.

Most pawnshops, like Beltline Pawn, are two businesses in one. They are a lending business, which includes an area for maintaining the collateral, and a retail business.

The retail store is necessary to the business model because that’s how the pawnbroker converts unredeemed merchandise into cash.

“We’re always going to have a store full of used merchandise,” Hall explained. “We need the retail side just as much as we need the pawn side. We’ve got to have the pawn side to loan the money and make the interest and get the inventory, but we’ve got to have that retail side to turn over the inventory.”

35% redeemed statewide

Statewide, borrowers redeem about 35 percent of pawned goods. Many see that low redemption figure as an indictment of pawnbrokers, or at least an argument that the industry needs stricter regulation.

Hall sees it otherwise.

“(Public interest groups opposing pawnshops) have no idea,” Hall said. “They’re just looking at numbers on a piece of paper. If any other loan company, including a bank, only redeemed 35 percent of its loans, it wouldn’t last a year. This is a very high-risk loan.”

Physical possession of the collateral makes it work.

“Anything I touch when someone comes in for a loan, I’m thinking, ‘I’m going to have to sell this piece of merchandise.’ That’s the way you have to look at every piece of merchandise, if you want to stay in business,” Hall said.

Hall complains that the focus of critics, on exorbitant annualized interest rates, is misleading.

Jason’s annualized interest on a bank loan would be dramatically lower than the interest on his pawnshop loan, but costs involved in getting a small loan would be onerous, especially if he manages to pay it back in 30 days.

Loan business

Banks and pawnshops are both in the business of lending money, Hall acknowledged, but the loan products they offer are different and are geared to different needs. Whether that difference merits the 300 percent annualized interest Jason will pay if he redeems his guitar is another issue, but Hall said those pawning goods understand that annualized interest is a misleading way to evaluate a short-term loan.

Hall said many borrow money from pawnshops in part because they recognize that they may not be able to pay the loan back.

“They don’t want to put themselves in the position of borrowing from somebody they can’t pay,” Hall explained. “They know when they bring it here, we don’t really care if they pay off the loan or not. They know I’m not going to run over there and cuss them out.”

Hall has been in business for 16 years, and he said part of his success has been the result of economic honesty. He encourages borrowers to understand the business model.

“It’s all wide open,” Hall said. “You walk up to my sales counter and buy a DVD while standing next to a guy who’s selling 20 DVDs. I don’t mind you knowing that I’m charging you $3 for a DVD I only gave $1 for, because I sure don’t mind your knowing that I probably just threw 20 in the dump yesterday that were scratched up. I’ve got to make money. If I can’t make money, I need to be at home.”

You can’t find a pawnshop that does not sell jewelry, and that’s for good reason. While a pawnbroker depends entirely on his retail store to sell most unredeemed merchandise, jewelry provides him with a more certain outlet.

Market for gold

William Carrington receives $5 from Melanie Hall for pawning a fishing rod while Beltline Pawn & Jewelry owner Mike Hall examines the gear.
William Carrington receives $5 from Melanie Hall for pawning a fishing rod while Beltline Pawn & Jewelry owner Mike Hall examines the gear.
“We send the gold (in jewelry we can’t sell) to New York, to gold smelters who melt it down into a usable commodity and then sell it back to the jewelers,” Hall said. “Same thing with the diamonds. The jewelers set it in new mounts and put it back in their showcase and sell it right back to you. Pawnshops are probably the biggest diamond recycling centers in the world.”

“I can’t call New York and sell the 25 miter saws I have out here,” Hall continued, “but I can call New York and say I’m shipping you three pounds of gold.”

Hall does not pretend altruism keeps him in the business. It’s a job that makes him money. But criticizing pawnshops without understanding them is a mistake, he said.

“Pawnshops are the only ones they can turn to,” Hall said. “They can’t go to Mom and Dad and get the money they need; they can’t go to their friends and get it. We provide them an option nobody else provides. The main thing is just getting people to understand what we do and accept it for what it is.”

But is it real?

Are diamonds forever? Sure, but are they really diamonds?

Pawnbrokers love diamonds because, unlike guitars and power tools and cameras, they can sell them even if their retail customers are uninterested. Diamond brokers are always happy to buy the merchandise and re-sell it to a jewelry store.

Only, of course, if it’s really a diamond. How does the pawnbroker know?

Mike Hall, owner of Beltline Pawn and Jewelry, has two high-tech testers. The tried-and-true one tests a stone’s density. A diamond, he explained, is the hardest stone. If he puts a rock in the remote-control shaped tester and a yellow light shows, it’s cubic zirconium. The green light means it’s a diamond.

But recent developments complicate the equation. Moissanite is a synthetic diamond, but made in a lab with the same ingredients as a real one. Moissanite stones are not as valuable as diamonds, but they are valuable.

Problem is, moissanite is close enough to the hardness of a diamond that it passes muster with a standard tester. Hall now has to use a second tester designed solely to separate moissanite from diamonds.

Hall said there are two main clues that alert him that a stone may be moissanite. One is that it has a slight green cast. Most diamonds have coloration, so a layperson is not likely to detect this feature.

The best clue? Moissanite stones are perfect. A natural diamond almost always has imperfections — a small fracture called a “feather,” or a slight carbon deposit.

“If a perfect stone hits your hand without paperwork,” Hall said, “you want to test it as moissanite.”

But don’t be too upset, ladies. Moissanite goes for about $1,000 per carat.

Eric Fleischauer

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