Pawning your valuables for quick cash is not a practice typically associated with the well-heeled but it seems even the wealthy are now resorting to putting up their prized possessions as security to alleviate short-term cash flow constraints.
Lamna Financial, a non-bank lender that specialises in disbursing short-term loans to high net worth people who can put up valuable assets as collateral, has disbursed more than R1bn to 7,500 customers since it started operating in 2013. However, it’s the extraordinary array of assets the company accepts as security in exchange for loans that is interesting.
Lamna will lend money provided it can secure collateral with a minimum value of R10,000 and accepts as security products ranging from used Louis Vuitton handbags to artworks, jewellery, gold, diamonds, antiques and motorcycles. The company will even extend bridging finance against a portion of Road Accident Fund settlements or property transactions for which payment is still pending.
“Running into liquidity problems isn’t the privilege of the poor — wealthy people also have cash-flow problems,” says Charles Meyerowitz, co-founder of Lamna. “An Aston Martin in the garage or a yacht docked on the west coast has intrinsic value but yields zero liquidity. These assets can be sold, but that takes time and often the seller is forced to sell at less than ideal terms. Why should a short-term liquidity gap necessarily mean the permanent offloading of assets?”
Meyerowitz says Lamna offers an asset-backed lending solution that is able to disburse money within 12 to 24 hours and does not require the asset in question to be sold. This allows its “highly entrepreneurial and business savvy” client base to unlock equity in high-value assets with low liquidity without imperiling their credit records.
“We bank the asset by warehousing it and use that to facilitate the transaction,” says Meyerowitz. “That means there is no recourse against the borrower as the market maker is the asset. In that sense it’s a relative risk-free way of borrowing.”
It also does away with potential risk for Lamna, which can avoid having to go after borrowers in the event of a default as it can simply sell the asset to cover the loan amount. Meyerowitz says the company is National Credit Act-compliant and typically charges interest of between 2.5% and 5% a month for its short-term loans, which are mostly taken up by small business owners who struggle to obtain financing from banks, which usually require formal business proposals or detailed spreadsheets with revenue and profit forecasts.
Lamna’s typical client is black, 30 to 55 years of age, and is an entrepreneur that falls into an upper living standard measure (LSM) and who has a commercial opportunity that requires fast financing. He says their cash requirements are positively correlated with economic activity.
“Businesses generally need cash-flow assistance when there is business activity,” says Meyerowitz. “The better the economic activity, the better business.”
That’s borne out by the numbers, which show that the growth in Lamna’s customers and loan disbursement has actually slowed as SA’s economy has declined in recent years. Lamna’s year-on-year customer growth between 2014 and 2015 was 153%, while loans grew 111% over the same period. At the time, SA was still experiencing low but positive economic growth with GDP expanding 1.5% in 2014 and 1.3% in 2015.
Since then, loan and customer growth has gradually waned in lockstep with SA’s economic deterioration. The Covid-19 pandemic has taken a particularly heavy toll with loans falling 6% and customers dropping 2% in the 2020 to 2021 period.
“It is clear from our statistics that our level of activity was compromised during the extended lockdown last year,” said Meyerowitz. “But I do see it recovering as the economy picks up.”
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