Pawn Stars 2.0
Terry Croom needed cash, and he needed it fast.
Croom, who runs a small advertising firm in Greensboro, North Carolina, says he needed an extra thousand dollars to print about 5,000 copies of his company's "Hookup Card," a local business discount offering. He also needed 2,500 brochures to present at a local event that would host about 6,000 potential customers.
"Cash was tight," Croom says, noting that he and his business partner, Tita Wofford, had maxed-out the personal credit cards they had been using to fund the business for the last year.
Perhaps out of a bit of desperation, Croom, a Harlem native, grabbed his Panasonic HD video camera, which he says he bought for about $2,700, and brought it to a few Greensboro pawnshops. He was discouraged by their offers: He wasn't going to get more than $300.
"I said, maybe if I go online, I can get a better offer," he recalls.
Croom searched the Web and found Pawngo, a Denver-based start-up that purports to be the world's first online pawnshop. The company, which launched in June 2011 and has received about $2.6 million in venture funding from Daylight Partners, Access Venture Partners, and Lightbank, allows entrepreneurs to pawn personal items—from gold to Gucci—in exchange for quick business loans. Disbursements typically range from a few hundred dollars to several thousand; the largest loan in company history so far $50,000 (which came in exchange for 40 Krugerrands, South African gold coins that each weigh an ounce.)
"I saw the site, I called," Croom says. "The people were friendly, very informative, and I followed their instructions."
After uploading a picture and specifications about his Panasonic, Croom got an offer for $900. It all happened within about an hour. "It's not like how pawning was back in the day," Croom says.
Pawngo's CEO and founder, Todd Hills, says he sees Pawngo as the modern version of the 3,000-year-old pawn-shop business. He's put his money where his mouth is, too: Between 2007 and 2011, Hills sold his chain of brick-and-mortar pawnshops in order to focus on his Web start-up.
"We felt that with the current economic conditions and the tightening of credit, there is a new set of customers out there that this service lines up very well with," says Hills, who is 47. "They try other options before they come to us, but other options are just not panning out in a timely manner."
This new model of putting up belongings for cash online is catching on. In just four months, the company, which has 30 employees, has doled out more than $2.9 million in loans to business owners in 46 states, and expects to reach about $7 million by the end of the year. Hills says the majority of the loans have gone to small business owners who typically employ fewer than 20 people and generate less than $5 million in revenue.
So how exactly does one pawn for a loan?
Users log on to the site and write out a brief description of the asset that they'd like to pledge. That information goes to the company's "Evaluation Lab" in Denver, where analysts determine a provisional offer price. The company will e-mail or call the customer to explain how they arrived at that number, at which point the customer can accept or refuse the number. If the customer accepts, a Pawngo rep will e-mail the customer an overnight, prepaid FedEx label. If the customer sends out the asset that evening—all shipping is insured by Lloyd's of London—Pawngo will receive it the next morning, and company evaluators will take one last look and make the final offer. If the customer accepts, money is deposited directly into their bank account.
If all goes smoothly, the process takes just 24 hours.
Pawngo loans are short-term and capped at 90-day limits, which Hills says helps mitigate his company's risk of customers defaulting. It also loans at anywhere between 50 and 75 percent of the asset's value, meaning that if your Rolex's market value is $10,000, Pawngo will loan you anywhere between $5,000 and $7,500.
Customers pay a 3-to-6 percent interest rate on the loans, and payments are due every 30 days. So far, Hill says, 87 percent of the customers have made that payment.
"It's been a very, very successful launch," says Hill. "There's been a tremendous amount of traction."
But Hills admits there are hurdles the company must overcome. Most notably: the stigma and host of clichés that surround pawnshops. Aren't they grungy, untrustworthy businesses? And after all, are you really going to send your $15,000 Rolex in the mail to a company that, frankly, sounds like it could be a scam akin to Cash4Gold?
"The industry has been slowly cleaning up since the early 90's," Hills asserts. "You're starting to see pawn stores in nicer areas...and we want to be completely transparent. We spend a lot of time educating our customers. It's a big challenge."
Croom is making payments on his camera and expects to get it back at the end of his 90-day loan agreement.
"Would I do it again?" he says. "Absolutely."