If there's one business that really grows during a recession or slump, it has to be that of a pawnbroker. Pawnbrokers have been in business for hundreds of years, lending people cash against their valuables.

What is a Pawnbroker?

A pawnbroker is somebody that lends you money against valuables you own. When they lend you money you're given a date by which time you have to pay them back the loan, PLUS a fee. On that date if you repay them you get your goods back, if you don't then they sell your valuables to settle your debt. You can often extend the payback time by renegotiating and just paying them a fee to extend the date.

All large towns, and many small towns, will have had a High Street pawnbroker set up in a prominent position in recent years - and the pawnbroker industry is literally booming as people are finding they need cash fast.

Just after Lehman Brothers collapsed in the autumn of 2008, a pawnbroker set up a discrete shop from a small apartment just around the corner from the City of London - and was doing a roaring trade taking in top level jewellery and watches from bankers who simply needed to raise cash quickly, but didn't want to be seen in a pawn shop on the High Street.

The fear of somebody we know seeing us go into a pawn shop is something that would stop many people, so I was interested to see a television advert for a company called borro who are literally a pawn shop by post! How innovative. I guess they have seen the success of people selling their gold by post - and so to take that to the next level with online and pawnbrokers by post is quite natural.

But, are they any good? Could a company like borro really offer you a better deal than your local cash converters perhaps?

Lower Overheads

A firm like borro.com will benefit from lower overheads. Maintaining a High Street shop, with business rates and full-time staff is very expensive. Many shops are shutting down on the High Street, staff are being laid off, so being able to dispense with the need for a shop and having to have staff stood around in case somebody comes in, wants a valuation, or wants to make a purchase, it can be expensive.

Instead of a High Street shop, they can have a secure unit on a cheaper, out of town industrial estate.

Instead of employing staff during shop hours, they can hire staff in shifts to go through and price up and catalogue the incoming goods arriving by mail, with more flexibility.

Offer More Money Than the High Street Brokers

One thing that seems to be in their favour is that they will lend up to 3-4x what High Street shops will - and that's come from an independent study. In these credit crunch days, I guess people are no longer needing a quick £10-100, but are increasingly needing to raise up to £100,000 to complete on property purchases or keep themselves from being repossessed.

The only negatives I can really see would be the time it takes to cash in, but if you're looking to get the best price you can, or borrow more than the norm, then hopefully the 2-3 day delay for the money will be worth it.

The main competition therefore has to come from ebay - as people take stock of how important the item is to them - and decide it's better just to sell it - and the quickest way to sell anything, with the biggest exposure is on ebay.

You can always get a price to borrow against your goods, then put it on ebay with a higher reserve if you're unsure.

Either way, companies like borro are a sign of the times and I'm sure we'll be seeing a lot more of them!

The pawnbroker can offer you more for your goods, because they have lower overheads. 

The TV advert I saw had testimonials from people giving what seemed to be real life examples of what their local shop would have offered them, versus what borro was prepared to offer.  Running a business by post certainly leads to significant savings, that can then be passed on in the form of higher prices paid for your pawned goods.

Pawnbroker sign by: WikiMedia