The Family Jewels: SF Provident Provides High Value Asset Secured Loans For Business

    By Barbara Quick | Small Business

    It’s the rare small business these days—at least in the U.S.A.—that can trace its roots back a hundred years through three generations of the same family.  Delving into the history of such family-owned small business ventures, we’ve found that they seem to have one thing in common: a core of moral values passed on from generation to generation. These values inform every aspect of such companies’ day-to-day operations, from the way employees are treated to their esteem and fondness for their customers.

    Yahoo interviewed Joey Chait, the San Francisco-born owner of San Francisco Provident, and his movie-star handsome son Marcus Chait (who actually is—or was, until recently—a movie star), in the landmark San Francisco building on Mint Plaza that bears their company’s name and has, for over a hundred years, served as the heart and headquarters of their family business.

    Traditional pawn shops have a different vibe—and different goals—than the new breed of high-asset lenders such as the Chaits. “The pawn shop is waiting for that day when you don’t show up,” says Joey—“and they can stick your watch or whatever it is in the window and sell it. On that day, in our business, when you default, we send you a letter. We make you a phone call. We say, ‘Do you need a little more time? How can we work to make sure you get this out?’ Because we’re well aware that the day you forfeit your first asset, we’re probably never going to see you again as a customer.”

    Loans secured by personal belongings, which often hold a sentimental value for the borrower, tend to get repaid. Only four to five percent of people who borrow money from San Francisco Provident default on their loans. “That’s where it hangs and it doesn’t change,” says Joey, whose frank and colorful way of speaking is miles away from anything you’re likely to hear across a bank manager’s desk. “You don’t want them to forfeit the stuff. You want them to keep paying the interest on the stuff. They take it out, they bring it in. Once they lose it, they don’t have the asset to make the loan any more—and hence the customer is gone.”

    The Chaits particularly delight in their customers’ success stories. “We had a guy who wanted to start a chain of donut shops,” Marcus told us. “He brought in a suite of jewelry. We evaluated it. We made him a loan. And six months later, he came in with a box of donuts. ‘I started my donut shop! I want to thank you guys! Without you guys, I couldn’t have done it.’ He couldn’t get a loan from a bank, and he had jewelry to back up the assets. And when he brought us the donuts, he wanted to start a second shop. He gave us the same suite of jewelry and we made him the same loan. And this went back and forth maybe four, six times.”

    Like many of the businesspeople who’ve borrowed money from the Chaits, the donut man was an immigrant. “It really felt like an American Dream story,” said Marcus. He told us about another new immigrant, this one from Turkey, who intended to launch a line of textiles—but needed a loan to tide him over until his goods made their way through Customs. Each of these entrepreneurs ended up owning tremendously successful companies—and both are grateful to the Chaits. “That’s the most fulfilling thing to us, being able to provide people an opportunity in times when bank lending is so tight—when it’s so hard to run a business.”

    It’s a little known fact that real estate agents regularly pawn their own jewelry or watches as a way to loan their clients the money to complete the sale of a home. “The client can’t get a normal bridge loan,” Joey told Yahoo. “And because houses are selling so quickly now, we’ll have real estate agents come in who say, ‘My client is waiting on their loan but we can’t close on the house, so I’m going to front the money for the down payment.’”

    The Chaits estimate that 15-20 percent of the business loans they make are to real estate agents. Joey explained, “If they want to buy a property and flip it, they’ll say, ‘I know this house. I’m short on the down payment. If I flip it I can make twice the money back.’”

    Even such conservative sources as Forbes Magazine concede that high-end pawn-brokers often end up coming through for small businesses in ways that banks sometimes fail to do in these days of tight money and chary lending practices. In fact business funding has changed dramatically in the past twenty years, especially since the financial crash and there are far more alternative funding sources for businesses than there used to be.

    There’s a colorful story behind every cardboard box of jewelry stashed away in the Chait’s bank-level security vault—as well as in pawned items that are much too big to fit there. “We had a guy who is CFO of a tech company,” Joey told us, “who sits on two different boards. He came in and said, ‘It’s about four more months until I can cash in on my stock in these companies. And in the meantime, I have a very expensive lifestyle! I have a girlfriend who has very expensive taste. And I like to travel and do very expensive things. And I’ve got a boat that’s sitting in the harbor in Sausalito—and a collectable Alfa Romeo. Can you guys make me a loan on them?” The Chaits gave him the cash he needed to float his lifestyle until the tech stocks paid off—and meanwhile made a tidy sum of interest for themselves. (The rate of interest on high-asset loans up to $2499 is set by the State at 2.5 percent per month, but—caveat emptor—accrued monthly, that can add up really, really fast.)

    Marcus, who only joined the business recently, provides a vital link to the new demographic of rich and restless San Franciscans. “We’ve had some younger guys come in and say, ‘My grandfather left me this Rolex collection. I don’t ever wear these watches! Can they help me move my business forward?’”

    People 50 and under are mostly unaware of high-asset lending as an alternative to banks. San Francisco Provident hired a PR agency to get the word out to the younger generation, said Marcus, “that this is a viable, respectable way, if a bank turns you down—or if you need money fast. You can come in here—and, for all intents and purposes, you can walk out 15 minutes later with $50,000, if you have the assets to back it up.”

    “If” is the operative word. SF Provident has seen its share of scammers over the years. There was the member of San Francisco’s aristocracy in 1965 who came in to borrow $25,000 on an emerald that turned out to have been “borrowed” on consignment from Van Cleef and Arpels in Paris. The Chaits were tipped off on that one by a phone call from Interpol.

    “The great thing about doing a collateralized loan, as opposed to going to a bank,” explained Marcus, “is you don’t have to go through a credit check. But we need to know—obviously—that you own the piece.”

    A Joan Miro painting, worth at least $375,000, was put up as collateral by an art collector who neglected to say how annoyed the bankruptcy court was likely to be when they found out that he was in possession of a major undeclared asset. “He originally wanted to borrow $75,000,” Joey told us. “Now he comes back and he says, ‘I’d like to borrow 80 grand—and I'd like to all in cash. So I look at him and I say, ‘There’s a few problems here. Number one, we never loan anyone $80,000 in cash. Number two, I can’t make the loan to you. And, number three, I can’t return the painting.’”

    Joey eventually got a phone call from an art dealer in New York. “He says to me, ‘I hear you have a Miro.’ And I say, ‘Yes I do.’ He says, ‘I represent the owner.’ And I say, ‘That’s very nice. But at this point, you’re going to have to convince the bankruptcy court and my attorney that you truly do represent the owner. And you’re going to have to pay my legal fees and shipping costs up to this point.’ Well, they did it. The painting actually belonged to a doctor in Oregon who had shipped it to somebody in New York on consignment, who had given it to this other art dealer on consignment, who then brought it to me. That’s how convoluted some of this stuff gets.”

    High-asset lenders are able to file what’s called a UCC-1, to perfect their security interest in the collateralized property—and determine if there are any liens against it. “For sizable loans,” explained Joey, “we do significant research to make sure that situations like that don’t come up.”

    But most of the Chait’s clients are simply people looking for a quick, alternative and legitimate way to get a short-term loan—or to use their personal treasures as the basis for a revolving line of credit. One of their clients, the owner of a chain of nursing homes, regularly pawns the same suite of jewelry whenever she wants to acquire a new property—or finds that money, for whatever reason, is tight. The owner of a painting by William Glackens took out multiple loans against the work of art, borrowing anything from $100,000 to $1.2 million against the painting over a period of several years. (Joey arranged to have the painting hung, on loan, in the San Francisco Museum of Modern Art during the time it was entrusted to him.)

    More than once the Chaits have had the sad duty of informing a new divorcée that the diamonds her husband had given her weren’t real. “‘Knowing him,’” Marcus reported one of them having quipped, ‘I’m not surprised!’

    “We want to be supportive of the client, and sensitive to their situation, whatever it is,” Joey chimed in. “But as business people, at the end of the day, we have to make sure of the worth of whatever it is that’s securing the loan.”

    It’s not always easy—and the Chaits sometimes have to bring in specialists—to assess the value of an asset that’s been brought in. The vault has a collection of boxes right now containing a collection of unworn Manolo Blahnik, Cristian Lubiton and other ultra high-end shoes, along with some Hermes and Berkin handbags.

    Scrolled across the bottom of SF Provident’s website are the words, Honesty. Discretion. Tradition. Trust. Respect. “These are the watchwords that were passed down to me from my grandfather,” said Marcus. “I use his jewelry loupe on any given day. There was never a more honest, respectable man.”

    We wanted to know how the pawn-shop founded by Crocker, Fleishacker and Hellman in the early 1900s and then acquired in 1952 by Joey’s maternal great-grandfather, a turn-of-the-century immigrant from Russia, grew up to become one of the premiere luxury asset lenders of Northern California, patronized by a colorful array of well-heeled clients, from jewel-bedecked San Francisco socialites to Silicon Valley technocrats in need of some quick cash.

    “The business,” Marcus explained, “used to revolve more around lower to middle income customers who needed personal loans to help them get through the month.” The founders of San Francisco Provident conceived of the business as a safe alternative to pawn shops—a way for ordinary people to get through hard financial times without compromising their dignity or safety. Loans early on in the company’s history were sometimes for as little as a dollar.

    “What’s happened,” Joey told us, “is that a lot of those people have been priced out of the Bay Area. They don’t live here anymore.” As real estate prices rose, the company’s customer base completely changed. “We started seeing an influx of people who were saying, ‘I’ve got a startup down in Silicon Valley—and I’m $10,000 short of where I need to get before our funding kicks in…’ or, ‘I want to expand my existing business and I need $30,000 to do a remodel.’ It’s been a fascinating evolution.”    

    It’s been an evolution, however, rather than a revolution: individuals are still coming in to San Francisco Provident with their jewels and other high-value items—and bringing home cash. “We’ve worked with people over generations,” says Marcus with a smile that’s a carbon copy of his dad’s. “People come in and say, ‘My great-grandmother used to come here!”

    Much to his father’s surprise and delight, Marcus retired from acting to join the business in 2012. They now operate two businesses together: San Francisco Provident Loan Association, where they make all their loans, and 66 Mint, where they buy and sell jewelry. “My great-grandfather, my grandfather, my father and I had to gain so much knowledge about jewelry in order to loan against it,” said Marcus, “we realized that we know the value of this stuff as well as anybody.”

    Pointing at Marcus, Joey added, “This is the best part of it, right here: I get to spend time with him. I worked with my dad in the business for 28 years. And we had more fun, just being together.”

    Read More:

    The Small Business Financing Spectrum

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