How to Start a Pawn Shop

Pawn shops provide the average person a simple and fast way to obtain cash, either through a temporary loan or in exchange for a valuable item.

Throughout the years, the pawn shop industry has been fairly recession-proof due to the fact that it can be difficult and time consuming to receive a loan from a bank or other traditional method. Pawn shops can be very profitable, but require the business owner to have a different level of skill and knowledge than in a traditional retail establishment.

Legal Requirements:

Because a pawn shop handles financing transactions (providing loans to customers), the store owner must apply for a pawn shop license with with state in which the business is located. The state also charges a fee for the license application, and the license must be acquired before the shop is open for business. It's likely that you will need to submit other paperwork or have records pulled, such as a credit report and criminal record.

Skills Needed:

Customers can pawn items for a loan or sell them outright to the pawn broker. Let us say that an item is pawned for a loan. Both the customer and pawn broker agree on a loan amount, interest to be charged on the loan and a time by which the loan shall be repaid. What if the customer does not repay the loan plus interest by the agreed upon time? If this occurs, the pawn broker can then offer the item for sale to the public.

Much of what a pawn broker does is determine a value for any given item to be pawned or sold and/or establish a loan amount for that item. Therefore, the pawn broker must be skilled in this area or partner with experts who are. Significantly overvaluing or undervaluing items can result in hurting the business.

Location:

Another important factor in a pawn shop's ultimate success is where the store is located. Areas that offer a large amount of foot or drive-by traffic and high visibility are ideal. Stores with easy accessibility can easily attract lots more customers and in turn, repeat business. As location is so important, one of the first steps to take when starting a pawn business is to search for an ideally situated storefront.

Nowadays, pawn shops can also increase their store exposure and sales by setting up a website and advertising online. There are several pawn shop directories where you can have your pawn shop listed so potential shoppers can find it by city or state.

Inventory:

When opening a pawn shop, you can initially stock your store with items you purchase at estate sales, through classified ads, garage sales or even on eBay. As time progresses, your customers will provide inventory for you. Common items found in a pawn shop include jewelry, electronics, musical instruments, firearms, and tools.

Pawn shops will attract more customers and buyers when they stock a good amount of high-quality and brand name items. Try not to stock a huge amount of "junk-type" inventory that will end up attracting more lookers than actual buyers.

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