The U.S. is not the only place where it’s tough to get a business loan. Foreign entrepreneurs are also hard up for capital. So what are they doing about it? In China they’re hocking their homes. The China Post reports that more and more people there are turning to pawnshops for quick cash. Pawnshop lending in Beijing is up 70 percent from last year. Customers are people like Wang Fei, a 25-year-old law-school grad who needed a loan to open his dried-fruit stand in a Beijing mall. (Insert your own lawyer joke here.) After a series of rejections from bankers, Wang pawned his apartment and got 400,000 yuan ($58,000) for his 900-square-foot pad from Baoruitong Pawnshop Co., China’s largest pawnbroker. For jewelry and other valuables, clients get a loan right away, says Baoruitong rep Xu Yunpeng. Loans for real estate take longer: 12 hours. Try that down at your local savings and loan.
Pawn to rook 4. Of course, here in the U.S. folks would never pawn the family home, would they? They would. Although a Google search of “pawn your house” delivers just nine results, the top listing, Realty Shakers in Charlotte, North Carolina, reads this way: “If you wish to sell your house but would like to continue living there, we can help. We will buy the property from you and then allow you to rent the property back from us. Just sell the property to us and sign a lease agreeing to make affordable monthly rent payments.” Welcome to the new economy.
Loan defaults on the rise. Many small-business owners are upset at the trickle of credit from banks and the SBA. Turns out there’s a good reason for the slow pace of lending: the failure rate for SBA-backed loans has soared to 12 percent, says the Coleman Report, which provides research on small business. In 2004 the default rate was just 2.4 percent. “Lenders are criticized for not getting capital to Main Street but the problem, as this report shows, is that it’s hard to justify getting capital out there when there’s a 12 percent failure rate,” says Coleman Report publisher Robert Coleman.
11 franchises not to start this year. Also from the Coleman Report comes an annual list of the franchises with the highest default rates on SBA-guaranteed loans. The worst performers of 2008, with at least 11 failed franchisees, were: Aamco Transmissions, Carvel Ice Cream, CiCi’s Pizza, Cold Stone Creamery, Curves for Women, Domino’s Pizza, Dream Dinners, Planet Beach tanning salons, Quiznos, Subway and Taco Del Mar. Quiznos franchises were most often underwater. The sub shops defaulted on 108 loans in 2008. Since 2000 the franchise brands with the highest rate of SBA-backed loan defaults are: Mr. Goodcents Subs & Pastas (55 percent), Philly Connection sandwich shop (51 percent), Cottman Transmission (49 percent), All Tune & Lube car centers (47 percent) Cornwell Quality Tools (42 percent), Carvel (41 percent )and Blimpie (41 percent). Either these stats say something about the franchisors or Americans are making their own sandwiches and changing their own oil.