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Small firms' last resort for financing

By Yu Ran (China Daily)

08:35, January 21, 2013

Many small- and medium-sized enterprises' owners went to pawnshops and mortgaged their cars for short-term loans during the year-ending period. SMEs are increasingly facing a working capital crunch, as banks are reluctant to lend to them due to their poor business record. Liu Daowei / For China Daily

Many private business owners turn to pawnshops to find alternate funding options

After knocking on several doors, Wu Xiang finally raised the money required for urgent business expenses from a pawnshop in Tianjin by pledging his more than 2 million yuan ($321,000) Porsche Panamera as collateral for a cash loan.

Though the monthly interest of 4 percent on the 1.5 million yuan loan is steep, Wu, the 34-year old owner of a small trading company in Tianjin, says he has no regrets in pledging his prized car as "profit margins are shrinking and there are virtually no other financing avenues."

Wu, is not alone in his predicament as several small- and medium-sized businesses in China are struggling to find alternate financing options to stay afloat especially in the November-December period.

Like Wu, many of the small and medium business owners are now increasingly turning to pawnshops, so much so that they have become an integral part of China's modern financial landscape.

"I urgently needed 1.5 million yuan to make the balance payments to my business partners, pay a final loan amount to the bank and for the salaries of my employees before the end of the month," Wu said.

Having said that, Wu adds that he would redeem the prized car as soon as he gets alternate financing from a bank. He says that this is not the first time that he has had to trade in his belongings for short-term funds as he had earlier pledged his apartment for a two-month loan of four million yuan in 2011.

Unlike the loan procedures in financial institutions, which normally take up to a month for approval, pawnshops often offer instant money. The process usually consists of pledging the assets along with the related documents at a pawnshop.

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