SMEs turn to pawnshops for loans
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Small- and medium-sized companies in China are turning to pawnshops for quick and easier money-borrowing services, even at much higher costs, as they are finding it difficult to get bank loans due to tight lending policies.
The central bank's move to raise the benchmark interest rate made it harder for the small- and medium-sized companies to borrow money from banks, and this is providing a boost for the pawnshops, Han Li, a legal adviser from Beijing Pawn Trade Association, told China Daily.
Many small- and medium-sized companies pledge cars as well as real estate, including offices, shops and factories, to resolve short-term cash-flow problems.
"The cost for pawning privately owned houses is 3.2 percent of the amount borrowed for each contract period, and for companies' real estate can be a maximum of 4 percent in our pawnshop," said Huang Ronghua, a manager from the real estate business center of Baoruitong Pawnshop, a major chain in Beijing. The regular period for a pawn contract is 30 days.
In Huaxia Pawnshop, borrowers pay at the rate of 3.2 percent for both privately owned and company-owned real estate for each period. The rate for pledging cars is as high as 4.5 percent.
The People's Bank of China (PBOC) raised the one-year benchmark interest rate by 0.25 percentage points and adjusted the one-year loan rate to 6.06 percent on Feb 8.
That means that the bank loan rate for a month is only about 0.5 percent, while the borrowing cost from pawnshops is about six times higher.
Usually companies can get money in less than three days after they provide property-ownership certificates to pawnshops. For car pawning, it is less than 12 hours. faster than the bank's credit assessment procedures.
"Lending money to small- and medium-sized companies has become the major business of our pawnshop, and the deal volumes are much higher than personal products pawn over the past few months," said Chen Yuan, manager of the Marketing Department of Baoruitong Pawnshop.
According to Han, the legal adviser, the money that pawnshops lend comes from bank loans and their own funds, and the amounted loaned should not exceed the pawnbroker's registered capital. Therefore, pawnshops earn a good margin from their business.
Some banks, including the China Agricultural Bank and the Bank of Beijing, are the cooperative business partners of Baoruitong Pawnshop. Huaxia Pawnshop is in partnership with banks including the Industrial and Commercial Bank of China and Hua Xia Bank.
"Without professional risk-management systems, pawnbrokers in China have higher risks than banks. Pawnshops should improve risk-management capabilities to provide better financial services to small- and medium-sized companies," Han added.
