- Should You Sign a Personal Loan Guarantee? (Time Magazine)
- Pawnshops see bump in gold, personal loans (The Fairfax County Times)
- Personal Insolvency Law stirs controversy following Senate vote (Nine O'Clock)
Posted: 23 Mar 2010 02:24 AM PDT We all know that if we don't pay our mortgage, our home can be foreclosed on. We know that if we don't make our car payments, our car will be impounded. But I bet not every small-business owner fully gets that if you sign a personal guarantee for a loan or line of credit and your business ends up defaulting, everything you own can be seized, including your house, wedding rings and, in some states, joint bank accounts. Your wages can be garnisheed, as can your life-insurance policies. Bottom line: anything that looks juicy to the bank is up for grabs. Every year, millions of business owners agree to put their personal assets on the line. "Even a business with a solid balance sheet may be required to have a personal guarantee," says Therese Franzén, an Atlanta lawyer and chair of the American Bar Association's consumer-financial-services committee. The hope, of course, is that your business will thrive and you'll pay down the loan just as you would a mortgage.(See how to plan for retirement at any age.) I was a stay-at-home mom when I learned that people in default can include borrowers like my husband, who had never missed a payment but whose bank decided not to renew his company's line of credit. This was in 2006, when lenders were starting to rein in aggressive loans made to small businesses. In the case of my husband, a wholesale supplier whose revenues were declining, the credit line that started at $250,000--and steadily increased for six years--matured, was briefly extended and then was cut at the bank's discretion. The bank FedExed my husband and his former business partner a letter saying they had nine days to pay back a seven-figure sum. We felt as if we'd been punched in the stomach. But with the help of family and friends, we marshaled the resources to fight to keep our only sizable asset, our home. Among the legal oddities I learned along the way: banks usually require business partners to agree to something called joint and several liability, which may sound nice and fair but in reality means the lender may pursue just one of the partners for the entire debt. I also found out I had to sign a spousal consent only once, no matter how many times the line of credit increased. If we could redo it all, we would try to negotiate and structure the guarantee differently. "There are other bargaining chips in lieu of or to reduce the personal guarantee that banks may not go out of their way to reveal," says Michele Dean, senior vice president at Bethpage Federal Credit Union in Bethpage, N.Y. These chips include pledging accounts receivable and asking for a guarantee that gets smaller each year as you build a credit history. So what happened to us? Three years, two judges, one magistrate and many a lawyer later, our case was settled--the same surreal week the bank was bought by another bank. Now that our debt has been paid and the liens on our house have been lifted, we can focus on making a living as a team, enjoying our family and paying off our looming legal bills. I recently came upon a Benjamin Franklin quote that rings true: "He that goes a-borrowing goes a-sorrowing." Just make sure that if you do borrow, you know what's at stake. See 10 Things to Do With Your Money Right Now. See financial advice from the pros. |
Posted: 23 Mar 2010 10:06 AM PDT Recession proof is how pawnshop manager Kevin O'Dell describes business in his industry. It is always a buyer's market, he said -- it just depends on who the buyer is. In a good economy, pawnshops like Route 50 Gold & Jewelry in Falls Church, where O'Dell works, benefit from customers looking to purchase brand-name, new-to-you jewelry for heavy discounts. In the current fiscal slump, the pawnshop is stocking up on inventory, with gold as its standard. "There's so much competition that we're paying more for gold than we ever have," he said. "There's obviously more people coming in now. We've been seeing people who have never pawned before. A lot of people are selling [their wares] flat out. We'll ask them if they want to take out a loan and they'll say, 'No. I'll never have that much money to pay it back.'" Pawnshops offer customers three main options: selling their item, trading an item for another in the store of equal value, or pawning the item in a secured loan where the item is used as collateral. The customer can then buy back the item within a certain time period for the original loan, plus an additional interest rate. The Code of Virginia states that pawnbrokers can't set interest rates of more than 10 percent for month for a loan of $25 or less, more than 7 percent for a loan of $25 to $100 and more than 5 percent for loans of $100 or more. Since entering the pawn business six years ago, O'Dell said he has seen the price of gold increase from about $300 an ounce in 2003 to more than $1,000 today. It is the growing price of gold that has increased business for pawn shops, while other retail stores are struggling. "A lot of people think we're doing really well, but it's harder to find buyers," O'Dell said. So, Route 50 Gold & Jewelry has turned to refineries to buy its inventory in bulk. Profits from selling gold this way are lower, but steadier. O'Dell said gold sold to refineries, which compete heavily for the purchase, can bring in profits between 10 to 20 percent. In the pawn shop, the same item receives a 100 percent markup price from what it was purchased from the owner. "Certain things hold value and some don't," he said. Gold holds value, while other precious materials don't. "A $300 Movado [watch] only sells for half that, $150, so I'd only buy it for $75. A guy brought in a $400 Gucci watch yesterday and I only gave him $15 for it ... If you bring in a Rolex watch, that's different." In good condition, a $5,000 Rolex can be bought for $2,500 in a pawnshop and resold for $3,500. Prices for buying from customers looking to sell and setting resale values is often determined by what products could be auctioned for on eBay. Ric Rizer, owner of Royal Pawn in Alexandria, which is celebrating 20 years of business, said, "We've been trying to put down that old pawn shop mystique. People always think we're doing well, but our sales are down too. I think the only saving grace we've had is the price of gold." The days of guitars and drum sets lining storefront windows have been exchanged for the gold standard. "People can actually make a profit on gold items they purchased years ago," said Rizer. "We're really like a jewelry shop. We do have a lot of guitars, I won't lie. When the economy is down, people sell luxury items like jewelry and instruments." Paul Furman -- who owns five pawn shops including Route 50 Gold & Jewelry and Crossroad Pawn -- said pawn shops have replaced banks as lenders in many cases. "I've been doing this for 22 years and I've seen a few economic slumps," he said. "When the economy is good, the pawn shop is really better. We write more loans when the economy is bad, but our sales are down." Customers who don't trust banking anymore, he said, buy gold. Trading in gold is also popular among Northern Virginia's immigrant population, he said, who may not understand institutional banking but do understand barter. Pawn shops in Virginia are registered with their locality as having a pawn brokering license. Virginia law says only 12 pawn shops can be run in one jurisdiction. In Fairfax County, there are eight pawn shops with licenses, according to county records. Shop owners said there is a negative stigma that comes with pawn shops; however, they have worked to break that preconception. Pawnshops submit receipts on hocked goods daily to police to ensure they are not stolen. Like first impressions of pawn shops, customers taking out loans or selling goods have also changed with the times, said shop owners. "Used to be, people came in for $50 or $100 to last them through the weekend. People come in now, and are like, 'I need 800 bucks to pay rent,'" said O'Dell. There are sad stories of people desperate to trade in goods for cash, but, he said, it is rare that someone is turning in a wedding ring from a current husband. "The saddest stories are the women who come in and sell their jewelry because their husband lost his job and they don't want their husband to know that they're that desperate," he said. Although legally, pawn shops are only required to hold goods for 15 days before reselling, O'Dell said, "We try to work with people best we can. If they want their item back, we work with them." This posting includes an audio/video/photo media file: Download Now |
Posted: 23 Mar 2010 03:58 PM PDT 17761576 Visitors since Nov. 13, 2003 |
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