How to Start a Pawn Shop

Last Updated: February 25, 2023 References Approved

Pawn shops fill a demand for quick and convenient loans for people who don't want to, or don't have the time, to apply for loans from their banks. The main business of a pawn shop is to offer short-term credit with high interest rates against pledged goods, but they also buy and re-sell goods from people who want quick cash. Starting a pawn shop requires you to meet all of the stringent requirements for a pawn shop license, including proven experience, a criminal background check and a credit check.

Method 1

Method 1 of 3:

Getting the Right Training and Making a Plan

1
Learn how to assess the value of goods. This includes electronics, gems, and jewelry, as these are the most pledged items at pawn shops. One of the best ways is to go online to an auction site like eBay and study what people pay for various goods. This will give you a good idea of the general retail value of items at a certain moment in time.^{[1]
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- Bear in mind that over the course of time, trends change, so you'll need to remain up to date with current retail values in order to assess correctly. You can also visit other pawn shops in your area to see how they are pricing items.
- Apply for an internship or a job at a local pawn shop. This will allow you to learn how professionals assess goods, as well as how they determine what percentage of the assessed value to pay in the event a customer wants to sell an item.
2
Create a business plan. This is a strategic plan that will guide you in achieving your goals for the business. You can find more details about how to write a plan here, but you will want to include:
- Your business concept: The focus here is on describing your business and the market for your products and services.
- Market research: Market research is critical, as it describes the nature of the market you are entering into. Identify who your major competitors are, who your target market is, and the preferences and needs of your target market.
- A marketing plan: This should describe how you plan on addressing the needs of your market, how you will communicate with customers, and how you will advertise your shop.
- An operations plan: This will describe your operations on a day to day basis. It would include, for example, how you will make loans, how you will acquire items to sell, how you will price items and what interest rate you will charge for loans.
- A financial plan: This would outline how you will finance your business, what your expected costs are, and projections as to your revenue.
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3
Estimate how much start-up capital you'll need. Using your financial plan determine your projected annual expenses and gross income. You'll need to have enough capital to cover both your operating expenses and your customer loans. If you do not, you will need to take out a loan.^{[2]
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- Operating expenses include licenses, permits, insurance, a location, security system, contracts, employees' salaries, display cases, accounting software and repair costs of goods you want to resell.

Method 2

Method 2 of 3:

Applying for Permits and Licenses

1
Apply for a pawn shop license. You'll need to submit a pawn application form to the non-depository division of the Department of Financial Institutions in your state or country. You'll need to include a personal affidavit, employment history, credit check, criminal background check, fingerprints taken at your local police department, and financial statements listing your assets and net worth.^{[3]
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- You will also need to pay an application fee ranging from $1,500 to $2,000 per shop.
2
Register your business name with your state government, if necessary. A DBA (Doing Business As) is needed whenever you are doing business under a name other than your own. Registering a DBA name is typically done through your state government or county clerk's office.^{[4]
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Trustworthy Source
U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
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3
Apply for a sales tax permit. This can be obtained from your state Department of Taxation and Finance. You will need to keep careful records on which items were sold with the amount paid, and how much in sales tax was collected.
4
Obtain a federal tax ID number. You will need to file a separate tax return for your business and therefore will need to have a federal tax ID number. You can find the form online at www.irs.gov.^{[5]
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Internal Revenue Service
U.S. government agency in charge of managing the Federal Tax Code
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5
Obtain a Federal Firearms License if you plan to sell guns. This is obtained from the Bureau of Alcohol, Tobacco and Firearms. You can obtain the application form online at www.atf.gov.^{[6]
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U.S. Bureau of Alcohol, Tobacco, and Firearms
U.S. federal law enforcement agency dealing with crimes related to firearms and alcohol and tobacco products
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Method 3

Method 3 of 3:

Setting Up Your Shop

1
Look for a location for your pawn shop. You'll need to comply with your city's zoning requirements, so check with the local Zoning Department before you sign a lease. If you're having trouble finding a good location, see if you can take over an old pawn shop that meets location and zoning requirements.^{[7]
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- For example, in many areas a pawn shop must be a certain distance from schools.
- When you find a potential location, sit in your car for a few hours and analyze the foot traffic in the neighborhood. Is it near public transportation or highways? Is there enough parking? Are competitors and other shops nearby? Being near the competition can help attract the right customers if you believe your products and services will be superior.^{[8]
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- You will want to also analyze the demographics of the area. Does the income level match the type of clientele you hope to attract? Your local librarian or commercial real estate broker can help provide this information.
- Once you find a location purchase insurance policies for general liability and fire insurance.
2
Hire an attorney experienced in consumer law to draw up customer contracts. These should include the sum, interest rate and duration of a loan, as well as what the procedure is in the event an item is damaged or lost. Define what will happen if the loan is not paid back by the due date.
3
Furnish your pawn shop. At a minimum you will need shelving, lockable display cases, a cash register and a computer. It is especially important to install a good security system with armed response, meaning the police will be immediately notified if the alarm goes off.
4
Buy inventory to sell. You will want to have items to sell in addition to those that customers bring in. Shop at local flea markets and go to auctions, estate and garage sales, or look through classifieds in your local newspaper and on Craig's List.
5
Interview and hire employees. Place ads online at such sites as Craig's List, Indeed and Monster.com. Choose those who have retail or banking experience, an outgoing personality, an ability to make repairs, and good references. Make sure to run a background check on each potential employee before hiring.^{[9]
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- Your local police department can run the background checks for you.
6
Open and advertise your pawn shop. Develop a website using templates you can find online for free, or use a service like WordPress that starts at about $70.^{[10]
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- Consider having a grand opening with door prizes or discount coupons. Advertise the opening in newspapers, radio stations, Facebook, signage at bus stops and on your website.

Community Q&A

Question

How much revenue I should have to start a pawn shop?

Community Answer

A good rule of thumb is to have twice the amount of capital on hand equal to your expected loan volume. In your business plan a large part of your income (about 1/3) is generated from loan interest. So if your plan shows you having and maintaining $25k in loans a month, that would generate $6250 in interest. So, on average, you should have on hand or access to at least $12k. Your startup cost varies with factors like rent, but generally you can get started with around $30 - 35k all in.
Question

What courses do I have to do?

Community Answer

There are no specific courses required, although a background in business management would be great. It's a business at the end of the day.