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How to Open a Pawn Shop

By   /   January 25, 2013  /   No Comments

If you follow pawn news at all, you’ll know that pawn shops are thriving right now.  Opening a pawn shop is not a simple process, but if you’re willing to follow the right steps and if you have or are willing to learn the skills and knowledge it takes to be a pawnbroker now is an exciting time to be part of the pawn industry.  Collateral lending in some form can be traced back 3000 years in history.  While in recent history the industry has had a rather seedy image, modern pawnbrokers have been working hard to change this image.  The economy has been volatile but as a business, a pawn shop doesn’t need a thriving economy to do well.  History shows the pawn shop is not going anywhere.  It’s an industry that’s experiencing a current boom as well as an industry with proven staying power.

The modern pawn shop offers not only a second-hand retail service for the shopper looking for a good deal, but also, and probably more importantly, a financial service banks cannot provide.  It’s important for an aspiring pawnbroker to understand that the bulk of their business will not be reselling goods, but will be in pawn loans.  Short-term collateral loans will be your primary function and where you will make most of your money.  Customers who have been turned down by banks,  only need a small amount of cash or need their cash quickly will be coming to you for their lending needs.

Because you will be loaning money, or operating as a financier, opening a pawn shop takes more than just getting a local business license and having business savvy.  You will need to be licensed as a pawnbroker in your state, a process that requires a comprehensive pawn application and supporting documents including verification of your net worth, your credit history, a criminal background clearance and finance related experience. A  Money Services Business FinCen Registration is also a must.  You will need to learn every federal, state, county and local pawn statute.  The pawn industry intersects with many other industries meaning you will need to have or gain knowledge of how to evaluate precious metals, jewelry, electronics, gems, watches, collectibles, firearms and many other items.  In addition you will need licenses pertaining to these industries such as a state weights and measurements scale license for evaluating precious metals or if you choose to deal in firearms a federal firearms license.

apply for a pawn shop license

Creating a solid and detailed business plan for your pawn shop is a must.  You will need a good accountant and a good banking relationship as a large part of your business plan will include funding.  The exact amount of start-up capital needed will vary depending on the scope of your business.  The National Pawnbrokers Association estimates that the start-up capital needed just to cover pawn loans in the first year of business is between $75,000 – 150,000.  That does not include daily operating costs or the cost of outfitting your pawn shop.  The jewelry business and the pawn broking business go hand in hand as lending against gold, jewelry and watches tends to work best.  If you choose to go this direction with your business plan, just getting enough jewelry to fill your display cases could cost another $150,000.  In addition to adequate funding you will also need to plan for location, security, insurance, good pawn software, business image and many other things.

The pawn shop model may sound simple at first.  You make collateral loans and buy and sell second-hand valuables.  However, the start-up process is not simple and as successful pawnbrokers will tell you running your pawn shop takes business and industry knowledge and willingness to continue learning.  A successful pawnbroker has to be a lender as well as an expert on multiple different industries.

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