Small Business Owners Turn to Pawnbrokers as Banks Tighten Credit

The economic landscape for small businesses in Britain has become increasingly challenging, with many entrepreneurs resorting to pawning personal belongings to secure working capital. Chris Gillespie, the chief executive of H&T—Britain’s largest pawnbroking chain—has observed a significant rise in small business owners pledging valuable items to cover wages and purchase stock. This trend has emerged as banks tighten their lending criteria for short-term credit, leaving small businesses struggling to access necessary funds.

Gillespie noted that while small business owners make up a small portion of H&T’s customer base, they represent a majority of loans exceeding £5,000. Pawning personal assets, such as gold and jewelry, has become a crucial lifeline for shopkeepers needing to buy stock, builders requiring materials, or those simply trying to cover wages until payments are received. H&T, with its network of 280 shops across the UK, reported a 12.5% increase in pre-tax profit, reaching £9.9 million in the first half of the year. This growth is attributed to the increased demand for pawnbroking services amid challenging economic conditions and a lack of accessible short-term credit options.

The Federation of Small Businesses has raised concerns with the Financial Conduct Authority, highlighting that lenders often require personal guarantees, which can put homes at risk and discourage businesses from seeking financial help. As small businesses navigate these turbulent times, reliance on alternative financing methods like pawnbroking underscores the urgent need for more accessible and affordable credit options. The situation emphasizes the growing trend of entrepreneurs putting their personal assets on the line to keep their businesses afloat, calling for greater support and innovation in small business lending.

In the context of the ongoing cost of living crisis, H&T has reported a significant rise in profits. The company, which operates 280 shops nationwide, saw pre-tax profits climb by 12.5% to £9.9 million in the first half of 2024 compared to the previous year. H&T’s lending business experienced a notable 14% increase, reaching £146 million year-on-year. This growth is attributed to broader macroeconomic conditions and a scarcity of regulated companies offering small, short-term loans. With rampant inflation driving up the prices of essentials since 2022, more Britons are turning to pawnbrokers for financial relief.

The current market conditions present a unique growth opportunity for the pawnbroking sector, particularly for H&T as the market leader. Customers taking out loans with H&T face an annual interest rate of 165.5%, and failure to repay the loan results in the sale of the pawned item to cover the debt. Interestingly, loans are being repaid more quickly than in previous years, with an average repayment period of 94 days in the first half of 2024, down from 97 days a year earlier.

Chris Gillespie commented on the company’s performance, stating, “Our core pawnbroking business continues to attract increasing numbers of new and returning customers, for whom alternative sources of small-sum, regulated lending are much constrained.” Additionally, while the value of lending against watches has decreased due to price volatility in certain high-end brands, gold purchases have remained stable, benefiting from elevated gold prices.