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Cover Story August 27th, 2009

  Untitled Document

coverby lyle e davis

Okay, here’s the deal:

You say you need some quick cash? You say you want to make some great buys and save lots of money? You say you have items you want to trade? You say you like to deal with well-groomed people who are well trained, courteous and professional? You say you want to get into a business where you can make a lot of money?

You can reach all of the above goals by getting involved with the business of pawning.

A History of Helping

As mankind’s oldest financial institution, pawn loans can be traced back at least 3,000 years to ancient China and can be found in the early Greek and Roman civilizations. The pawn industry came to America with the first settlers, and in the early parts of this century, pawnbroking was regarded as the main source of consumer credit.

With the rise of large consumer credit institutions, such as finance corporations, savings and loan associations, and credit unions, the pawn shop is no longer the main source of consumer credit. But the pawn broker still plays a vital role in providing consumer credit.

Let’s say you need some quick cash. Let’s further assume all you need is $500 to $1000. You sure aren’t gonna go to a bank or savings and loan and jump through all their hoops for $500, are you? Chances are, you can generate that $500 or so in less than an hour at your local pawn broker.

If we were to set up a business model for how to operate the pawn business, I don’t think we’d have to look much further than Gems N’ Loans, owned and operated by a handsome and kindly gent by the name of Mack Hembree.

He operates three Gems N’ Loans in North San Diego County: Oceanside, Vista, and Escondido.

photoAll three are spotlessly clean, staffed by knowledgeable, courteous and well trained people, and all have very attractive displays of merchandise they have for sale.

Escondido Location
Emerald Pendant with diamonds, with white gold chain:
Sells elsewhere for: $4500
At Gems N’ Loans $2700
Pawned for: $1000

Vista Location
Rolex watch, gold, with diamonds:
Sells elsewhere for $27,000
At Gems N’ Loans $11,000
Pawn value: $ 6,000
(see photo, below)


Escondido Location

Three large Turquoise stones in 14 carat gold settings, with diamonds.
Sells elsewhere for: $2500
At Gems N’ Loans $ 800
Pawned for: $ 250


photoEscondido Location

Lynrd Skynrd Autograph Model Guitar

Sells elsewhere for: $ 700
At Gems & Loans $ 299
Pawns for $ 230
(See photo, right)

And, there, my friend, are just four simple demonstration of how the pawn business works. You have a valuable item that you have no immediate need for. You do need some cash. You may get up to $1000, or even more, as a loan, using your valuable, unused, and unneeded item as collateral. You can return the funds, plus interest, within four months and you have your item back. You’ve put the funds to good use. You are happy. Or, you decide you no longer want the item. If you do not redeem the item, it becomes the property of the pawnbroker and he can sell it for way less than market value and still protect his position.

Modern pawnshops are clean, reputable businesses, very heavily regulated and held to high standards of ethics by various levels of government.

They perform a valuable service to the community and are a good source of quality merchandise at very reasonable prices. You’ll also find that a very high percentage of clients of a pawnbroker are repeat customers. Some even become like an extended family.

Take Gems and Loan client from the Vista location for example: Alicia Barrios is a longtime client. She became a client when Gems N’ Loans opened its Vista location 14 years ago.

Longtime Gems and Loans client, Alicia Barrios

“I buy, I sell, I trade, I borrow, I do it all,” she says. “I love these people and they love me. I feel like I’m coming home everytime I come by. I see some beautiful jewelry I like. I buy it and I buy it at a really good price. Later, I might wind up pawning that same jewelry if I need some money. Then I redeem it and we start all over again. They know me here. I trust them. They trust me.”

Nodding her head in agreement, Vista Gems N’ Loans manager Lucy Tirado, confirms that Alicia is a close friend as well as a client. “She’s part of our family,” says Lucy. “Many of our customers are like that. If we know you and you are a regular, we go out of our way to help you if and when you need it. Word gets around that we are here and ready to help. Over the past 14 years I’ve gained a lot of new friends just from this location.” Lucy had moved to Vista from the Oceanside store when Mac Hembree said he needed her experience to launch the Vista operation. “I was reluctant at first,” she says. “I would be leaving all my many friends and customers from Oceanside. But, you know what? In two years time I not only had new friends and customers here but I kept many of them from Oceanside. That’s what families do. We stick together.”

Lucy tells of another client: “We have this one client from Carlsbad who came to us originally because she was in desperate straits. She was quite comfortable financially and then she lost her home to the fires. She suddenly needed some quick money so she came to us with a beautiful collection of jewelry, probably around $30,000 worth. We loaned her around $5-6,000. She opted to not redeem it and we now have that jewelry available for $15,000. The great thing is, she became a regular client and we see her often.”

How It Works

Given the difficult economy, the pawn business has been booming. Throughout history, pawnbrokers have helped people — all people. Pawnbroking is not a new practice nor does it target or appeal to just one social class. King Edward III of England is said to have frequented pawn stores in Europe during the 14th century. Christopher Columbus’ journey to the Americas was financed by Queen Isabella pawning the crown jewels. The Bishop of Myra became known as the Patron Saint of Children, and each year children awaited his arrival at the stroke of midnight to bring gifts of gold. Sound familiar? He is now known as Saint Nicholas. Spreading generosity and good, Saint Nicholas is also the Patron Saint of Pawnbrokers.

More and more, quality merchandise at outstanding prices is what the modern pawn shop is all about.

Previously owned merchandise of excellent quality can be found on the shelves of your pawn broker. Every time a pawn broker loans on an item, he knows that someday it could be on his shelf for sale. Therefore, he only will deal in good quality merchandise. Also, the pawn broker is an established business.

photoToday's pawn broker knows his business is only as good as his reputation, and he wants to maintain a good reputation. It's as simple as that.

Oceanside Location

3.5 carat Diamond ring,
Sells elswhere for $25,000
At Gems N’ Loans $ 3,999
Pawn Value $ 2,500

Irene Cortez, manager of the Oceanside location of Gems N’ Loans tells of several customers. One, a motion picture producer had a son, a musician, who was badly injured in an auto accident and the producer needed some quick cash to acquire a hospital bed for his son. His father collected Mexican gold coins and had a 6 carat gold ring of his mothers. He pawned these items and, in time, his son recovered and the items were all redeemed. Plus, the son is now sufficiently recovered that he once again can play music.

Another treasure that once came through the Oceanside location of Gems N’ Loans was a 21 carat ruby and diamond pendant and bracelet combination. The daughter of a well known Hollywood actor brought this in to pawn. The jewelry had even been worn at the Academy Awards. The jewelry would have sold elsewhere for $25,000. Gems N’ Loans advanced a pawn value of $4500 and when it was not redeemed, sold it for between $8,000 and $9,000.

Irene’s eyes fairly glistened when she told us of several items that are still in pawn, but which she expects to be redeemed. “We have a regular customer who comes in. He has in pawn currently, a 1969 New York Jets jersey, autographed by Joe Namath, from Super Bowl III. We also have a signed fooball by the 1981 New York Jets “Sack Attack,” players Mark Gastineau, Joe Klecko, Abdul Salaam and Marty Lyons. We have a New York Jets Helmet signed by a number of Jet players. This collection is valued at $18,000. We loaned $2500 on it. No way will this client not redeem. These are priceless to him. He just needed some money to make payroll. He’ll be in to redeem this most any day now.”

Yet another member of the football fraternity is a customer of Gems N’ Loans. An ex football player is opening up a business in San Diego. He came in and pawned a 6.22 carat Platinum ladies diamond ring and a 14 carat diamond cross, all for quick cash to help get his business started.

Pawnbrokers generally make loans on jewelry, silver, clocks, stereos, sporting goods, cameras, musical instruments, tools, TV's, computers, bikes, coins, appliances. All are just a few of the things to be found in the pawnbroker’s inventory.

Today, most pawnbrokers only lend money against gold and diamond jewelery - electronics lose value too quickly as new brands come in. Rates of interest vary little across the industry, with most pawnbrokers charging 8% a month - $8 on a $100 loan. More than 80% of customers come back to claim the items they have pawned.

Mack Hembree, owner,
Gems and Loans

"We make our money on the interest charged. It's not about acquiring goods cheaply," says Mac Hembree at Gems N’ Loans.

Mr Hembree keeps his customers' goods neatly separated and itemized in secure storage facilities. Gems N’ Loans is licensed, bonded, insured, and 16 year members with A+ rating with the Better Business Bureau.

The soaring gold price has also been a factor in the growth in pawnbroking, as people realize that coins, old wedding rings and unwanted jewelry are now valuable assets that can be sold or borrowed against.

Pawnbrokers can easily tell whether jewelry is real gold. Ten years ago, gold traded at $275 a Troy ounce. Today that price is closer to $950. "It's really made people think about old bits of broken jewellery at the back of the drawer," said Mr Hembree.

Buying gold from customers has become a lucrative part of the business. With banks and credit card firms becoming more choosy about whom they lend to as the credit crunch intensifies, pawnbrokers are filling the gap. “What a recession or a tightening of credit does is send more of the mainstream credit customers to alternative sources of credit, like us,” says Hembree.

How Pawnbrokers Work

Pawnbrokers typically lend up to 30-50% of an item's value. Gems N’ Loans will often lend more than the average. Items can be redeemed at any time, but loan term is usually for four months. Loans are usually $100 to $150, with a minimum of $5, or as high as several thousand dollars depending on the value of the collateral. Generally, interest rates will vary with the amount of the loan, with the rate decreasing as the loan amount increases. The process is much the same as any other lending institution, with the primary difference being the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has been repaid. Typical interest rates are comparable to and competive with credit cards, or even less.

Compared with other forms of credit on offer to people on modest incomes, such as pay-day loans, pawnbroking can be a ready source of cash at a lower cost.

"If you need a small amount of cash for a short time, like if your car breaks down, it can be a decent option," says Hembree. “Many folks would rather come to a pawnbroker's to get cash than go to a bank Actually, we have a number of regular clients who will come and pawn merchandise with us and what they are really doing is using us as a bank vault for the time they are on vacation. We have some pretty smart customers and we’re happy to accommodate them.”

Pay-day loans, which are also becoming more popular as the economy slows, charge $20 to $25 on every $100 borrowed - an APR of more than 1,000%. Think of the modern day pawn shop as a marketplace – a real-life eBay – where you can buy or sell anything from Cartier watches to acoustic guitars.

Each pawnbroker usually will specialize in one area. These items maintain their value over a reasonable period of time and are easy to store, especially jewelry. All customers provide collateral, eliminating the need to distinguish high risk from low risk borrowers like a bank does.

Pawnbrokers offer the consumer a quick, convenient and confidential way to borrow money. A short term cash need can be met with no credit check or legal consequences if the loan is not repaid. A customer receives a percentage of the value the broker believes the collateral would bring in a sale. In other words, pawnbrokers feel their loan is "paid in full" at the time it is made. When a customer pawns an item, terms of the loan are printed on a pawn ticket that is given to the customer. The ticket states the customers name, address, type of identification provided to the pawnbroker, a description of the item, amount lent, maturity date, interest rate, and amount that must be paid to redeem the item. Most states regulate pawnshop interest rates and other charges, such as storage or insurance fees.

Repeat customers make up most of a pawn shop's business, similar to any other lending or retail establishment. Pawnbrokers know the vast majority of their customers because they often borrow against the same items over and over again. Pawnbrokers offer non-recourse loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether he/she elects to repay the loan. Unlike other types of loans, if a customer decides not to redeem the item in pawn then the item becomes the property of the pawnbroker and the pawnbroker puts the item out for sale. In the case of scrap gold and damaged jewelry the pawnbroker will send that off to a refiner to be melted down. Sometimes a pawnbroker wholesales items to other retail outlets or wholesalers.

Most states require the broker to notify by mail the pawn customer that he or she will lose the right to his property unless he or she redeems it within the stipulated grace period.

One can spend some enjoyable time just window shopping at Gems N’ Loans. Lots of pretties to look at, dream about, and, perchance, to buy!

photoThere are tools, musical instruments, a variety of items, but we found ourselves attracted to jewelry. For example, above, at

The Vista location:
A gold Austrian Franc:
Sells elsewhere for: $1200
At Gems N’ Loans: $700
Pawn value: $250

At the Oceanside Location:

3.5 carats ring
Sells elsewhere for $7000
At Gems N’ Loans $3999
Pawn Value $1000

At the Vista Location:
Egyptian Cartouche (above, )
Sells elsewhere for: $800
At Gems N’ Loans $399
Pawn value: $150


photoEscondido Location:
Emerald and Diamond Pendant in antique setting
Sells elsewhere for: $4500
At Gems N’ Loans $2700
Pawn value: $1000

Oceanside Location

Cross with diamonds: (below left)
18 carat diamonds
Sells elsewhere for $28000
Gems N’ Loans $13000
Pawn value $ 5000


While we have focused on Gems N’ Loans, there are other pawnbrokers in North County. The basic business principles are the same . . . but, as in all businesses, it pays to shop around. Another pawnbroker, located in Escondido is King’s Pawn, located at 1010 E. Valley Parkway, Escondido. They have some outstanding jewelry, one item of which caught our eye:

photoThis bejewelled snake is said to have been custom made in India, according to Heidi Hancox, owner of King’s Pawn. With 18 carats and brimming with diamonds and rubies, it is for sale at $7,000, would likely draw between $25,000 and $35,000 at auction; pawn value would likely be around $2000-$3000.

Evelyn Madison hates snakes, so even though she loves jewelry, when offered to put the combination bracelet and ring on, she quickly and firmly declined. She was less squeamish about the diamond ring shown above.

This 2.5 carat wedding ring (below) is priced at $1889, could well sell easily at a regular jewelry store for $6000 or more.

Heidi bought King’s Pawn from her folks and has been here for 17 years. She’s quite a knowledgeable young lady and was happy to give a lay person a bit of an education in the pawnbroking business, and in the composition of gold and the buying and selling of gold. So-called pure gold is 24 carats she explains. 18 carat is rated at .750% pure, 14 carat at .585% gold and 10 carats at .417% of pure gold.

photoWith us so far?

Okay, now if gold sells for a mathematical example of $1000 per ounce then, 18 carat gold is about 75% of pure gold, 14 carat is .585% of pure gold, 10 carats being .417% of pure gold, and the balance being made up of other alloys.

Pawnbrokers buy and sell by the gram. There are 31.1 grams per Troy ounce of gold. Thus 31.1 grams, or one ounce of 24 carat gold, has an assumed market value of $1000. Our pawnbroker has to make a profit so they will likely offer to purchase the gold from you at 70 to 80% of the value.

That, however, is for pure gold, 24 carat. They do occasionally see ‘pure’ gold, often from the Middle East. More often, however, they see 18 carat, 14 carat, and 10 carat. In those instances, the price of gold remains the same but since you are no longer dealing in ‘pure’ gold but an alloyed mix, the price works out to 70% (at King’s Pawn) of the current market. So if it’s 18carat, at $1000 per oz, that comes to $750 (based on .750%) and King’s Pawn will buy that 18 carat gold from you for 70% of $750 or $525. The rest of the math for 14 carat and 10 carat follows the same progressive formula.

There! Now you and I know all there is to go into the pawnbrokerage business, right?

Not quite. Heidi also points out that while the buying and selling of gold can be lucrative, it can also be risky. If gold is selling at $1000 per Troy ounce and the pawnbroker buys based on that rate, they have to, by law, hold their purchase for 30 days before they can dispose of it by sale. In 30 days, the gold market could decline drastically, leaving the pawnbroker in a lesser economic position. This is true of not only gold but all items the pawnbroker obtains. He or she has a legally required 30 day holding period during which they not only have not yet earned a profit but have their money tied up. If market conditions remain basically the same, they will likely earn a nice profit. If the market goes south, they are at risk of conceivably losing money.

photoLike her colleagues, Gems N’ Loans, Heidi maintains King’s Pawn in a brightly lit, attractively laid out manner. She and her staff are courteous and knowlededgeable. They are open Monday through Friday from 9:30am to 6pm, Saturdays from 9:30 to 5pm. Phone: (760) 432-9411

One of the more traditional type pawnshops is also located in Escondido; Collateraloan, located at 239 West Washington Avenue in Escondido. Owned and operated by Craig Salter, this pawnshop has been in business for 30 years; Mr. Salter has owned it for all those years. He has a high inventory of tools and other equipment, sporting goods, and, most certainly, jewelry. Here is just one example of their jewelry inventory:

This ring, with 1 carat, 1/2 carat center stone and 1/2 carat in baguettes, is priced at $1100.

Collateraloan is open Monday through Thursday 10am - 6pm, Friday 10am - 7pm, Saturday, 10am to 5pm.

And now have a better understanding of the pawnbroking business and the folks who make up this profession. Now, time to go shopping!





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