As UK banks fall behind on lending to small businesses and individuals, more consumers and enterprises are looking for alternative sources of capital. One such source, Borro, hopes to reinvent the ancient business of pawnbroking.
Speaking to CNBC.com in his office on Chancery Lane in the City of London, Borro founder and CEO Paul Aitken reeled off a list of recent loan deals: "What have we got going on this week? We've got a 50-grand ($82,000) loan against a yacht, 75,000 (pounds) against a classic Aston Martin; a Picasso that was bought in 1989. We did some Andy Warhols the other week.
"Four and a half grand on a Rolex – needed the money while he's going through a divorce. An art dealer closed a loan for five grand this week. That's the guy that's coming back with the Picasso. Someone who borrowed 20 grand against a Jaguar--that closed yesterday. That was for something to do with his business. We get a lot of small business owners that need liquidity," he said.
Borro is, according to Aitken, an attempt to legitimize the business of pawnbroking, an industry that suffers from deep cultural associations with the grey economy and the exploitation of individuals in desperate economic circumstances.
Launching – as Borro did, in 2008, on the cusp of a deep recession that the UK is still struggling to emerge from – leaves it open to accusations that it too is taking advantage of economic stress. Non-bank consumer and business lending services, such as Wonga and Ferratum, have been increasingly visible over the past few years. Borro differs, in that its lending is asset-backed, but has also found a lucrative space in the vacuum left by the banks.
"I think that it's fair to say it's been a good time for us to launch the business on that basis," Aitken said.
However, he added, the service is more mainstream than might be expected. The average loan size is around 2,500 pounds and default rates are between 10 and 12 percent. The typical customer, he said, is a small business owner who needs liquidity quickly.
"We have a lot of retailers with seasonal patterns, they have money in stock and they need to release capital," he said. "We've had a guy who runs a firework business. He was one of our first customers in September 2008 and he always comes back. He gets a loan in September and pays it back in January."
In June, the company lent more than 2 million pounds. As a sign of its increasing legitimacy, it is seeing more and more deals referred through independent financial advisers and private wealth managers, with clients taking out loans on expensive watches, cars and art to finance other investments.
"I won't deny that we have customers for whom it is lender of last resort and distressed lending, but the majority of people who come to us are not desperate," Aitken said. "If you've got a Rolex, are you desperate?"
Borro employs a team of valuation experts, headed by former Bonhams and Christies valuer Samantha Lilley, who assesses the assets to be used as security. In the event of a default, Borro sells the assets at auction.
The company's board includes Mark Blandford, founder of online bookmaker Sportingbet – another industry that Aitken said has been legitimized by its move online – as well as Paul Gratton, co-founder of Egg, the online bank acquired by Prudential in 2006. Its investors include early-stage backers of Groupon and Linkedin.
Like those businesses, Aitken believes that Borro could come to define its field.
"I think we are category-defining, and we're at the point where things could really scale," he said.
Like the founders of online lenders Wonga and Ferratum, which have grown online on the back of their proprietary technology, Aitken does not come from a lending background. After working for RM, an IT supply company, and technology retailer DSG, he founded Movota, which built systems to allow mobile phones to interact with televisions.
"It was probably a few years too early, nowadays it would fly," he said. Nevertheless, the business was sold to Bertelsmann in 2005 and Aitken, after some time out, started looking for new opportunities. The inspiration for Borro came one night in 2008.
"I had come back from the States…and that night I recorded a load of films on Sky+, because I was just going to chill out the next day, because the weather was crap," Aitken said.
"One of the films I recorded was the Pawnbroker, starring Rod Steiger, from 1965, which I've still never seen. And I woke up in the middle of the night with the idea of online pawnbroking. I went up to my office at the top of the house, wrote it down, got up the next morning, went online and found that no one was doing it."
Like Steiger's lead character, who meets a horrible fate in the classic film, Aitken intends to take his business to the US, hopefully within the next nine months. He will, no doubt, be hoping for a happier ending.