Out of the Shadows

High-end pawn shop in Beverly Hills, California.
Gabriel Bouys | AFP | Getty Images
High-end pawn shop in Beverly Hills, California.

"Indian gold can look a little cheap because it's so intensely yellow," says Pamela Baffour-Djan, holding up some tinny-looking bangles, "but that's actually because it's at least 22 carats," close to pure.

She disappears into a storage vault and returns with a jaw-dropping haul of high-end booty, all of which has been left as security for loans at Borro, the online pawnbrokers. Out comes a Cartier diamond and pearl necklace, apparently worth 50,000. This is followed by a heavy Rolex watch with a gold face that shines like a huge clockwork coin. A 1950s Fender guitar comes next, then a chunky ring that has diamonds set around a sapphire so large it resembles a scaled-down model of an oligarch's swimming pool.

Once symbols of their owners' success, these luxury items in Borro's vault, deep beneath London's Chancery Lane, represent a new type of loan deposit, as far from the poignant rows of simple wedding bands found in traditional pawnbrokers as a year-old Ferrari is from a used car.

The pawn business is changing. Pawn shops were once regarded as the last resort of the destitute, but it has become more socially acceptable for everyone, including the wealthy, to raise loans against personal valuables.

"Small business owners form 65 per cent of our business, though within that bracket we include people from ... sole proprietorship to over 200 employees," says Paul Aitken, Borro's chief executive.

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"They are often people who have bought assets when the going was good and now want to turn them back into cash without delay."

This growing use of pawnbrokers by the wealthy is not a British phenomenon. American online broker Pawngo, founded in 2011, has also found that business owners are increasingly relying on its services to raise rapid loans, without too many questions asked. Offering what he calls a "white glove, five-star service," Pawngo's chief executive Todd Hills says he is also attracting wealthy customers who want to convert the trappings of former good times into loan collateral.

"We recently approved a $125,000 loan to a customer who had clearly once had a very good time at Louis Vuitton. The client sent us a collection of eight to 10 immaculate Vuitton handbags, plus a large diamond and some beautiful watches." (Read more: Meet the Pool Guy to the One Percent)

While some objects deposited with this new style of pawnbroker, such as gold jewelry, may have been bought intentionally as a store of value, many less obvious trappings of the high life also end up in the vaults, suggesting that customers have often been taken by surprise by a need for fast cash. Pawngo does not accept anything that cannot be shipped via FedEx. Borro, by contrast, has a sizeable cache of fine art, most of it stored at Christie's. The company also holds a fleet of Ferraris and Porsches. To protect lenders' identities, Borro is tight-lipped about the artworks it has accepted as security, though Aitken does mention the names Warhol, Picasso, Henry Moore and Damien Hirst as artists whose work has spent time on the Borro inventory.

The new acceptability of pawning possessions is good news for this evolving corner of the pawnbroking business. But the notion that those doing the pawning are keeping their businesses and personal finances afloat with advances on their watches and handbags does sound precarious. Both Borro and Pawngo say, nevertheless, that they offer a sensible, even prudent service at a time when bank loans can often be difficult to obtain.

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"The thing I hear from customers most often is that business is good but that money is coming in slower," says Pawngo's Hills. "Typically, my customers are entrepreneurs who in the past had a lot of access to credit, who are now finding banks more reluctant. Nowadays, banks have to go through a lot of procedure and are not really helping out small businesses."

From Old Clothes to Cartier

Pawnbroking has benevolent origins, established in Europe as an interest-free lending system by the Roman Emperor Augustus (63BC-14AD).

The origin of the word "pawn" is unclear – some schools of thought say it is derived from patinum, Latin for clothing, as clothes were originally used as collateral. Others think it comes from pignus, the Latin verb "to pledge".

Pawnbroking has an even longer history in China, possibly dating back 3,000 years. In those days, borrowers had three years to reclaim their goods, but after the 1949 Communist revolution, pawnbrokers were vilified as "blood suckers" and shut down.

Over the centuries, the image of pawnbroking has changed according to the economic climate, though is has never quite attained complete respectability. George Orwell perhaps captured this best in Down and Out in Paris and London, with his colourful description of a destitute woman pressured into pawning her coat for a couple of billiard balls.