Starting a Pawn Shop

3/19/2014 by D. Cammarota

Pawnshops have been around as long as history has been written. Pawning, or "pledging" material goods in exchange for a cash loan has been around even longer. If starting a pawnshop is something you have always wanted to do, you can take comfort in knowing that they are not just a fad, they are time-honored institutions. And, just in case you're skeptical, Christopher Columbus' trip to the New World was paid for by perhaps the most famous pawn of all - Queen Isabella of Spain's crown jewels.

Pawnshops may seem simple enough on the surface - but they are actually rather complicated businesses and ones that take quite a fair share of initial capital and financial stability. They are, after all, lending institutions. The application process for a pawnshop license is rather arduous, so it is safe to say that if the idea came to you while you were pawning something, you might need to partner up with someone who has a good financial track record. Owning a pawnshop also takes a certain type of personality. While pawnbrokers have the pleasure of meeting a variety of people each day - collectors, traders, or just folks browsing - they often times must face people who are enduring very hard times. Emotions can run high and safety can become a concern, but evidence shows that pawnshops are a stable business venture that only becomes more stable in an eroding economy.

The application for opening a pawnshop begins with your state's Department of Financial Institutions (DFI.) This body acts in the interest of the public, protecting borrowers and consumers by enforcing the state laws that govern financial institutions. In the case of a pawnshop, it would ensure that you, the owner, would not charge excessive interest (each state varies) or put unreasonable expectations on the borrower. To the DFI, you must submit a credit report, a comprehensive financial statement demonstrating net worth (including liquid assets) and proof that you have the minimum amount of finance-related experience. You must also provide a criminal record report from whichever state you intend to set-up shop and reference letters from depository institutions such as savings banks, lenders or credit unions. Wrap-up all the above in a check for just about $2,000.00 and you are on your way to becoming the proud owner of your own pawnshop.

It may seem like the old adage "it takes money to make money" is the rule of thumb when it comes to starting your own pawnshop, but it's not as simple as that. Long-term stability and financial responsibility goes a long way in the application process. Each state has a minimum required net worth, but you can always think about borrowing money yourself. Since pawnshops have proven stability in the market, they are more likely to be financed than other less predictable businesses.

So, do you think you have what it takes to own a pawnshop? Even if you have all that you need on paper, there are other less objective measures of potential success. Do you know a lot about tangible goods like precious metals or gemstones? How about electronics, musical instruments or firearms? These are among the most popularly pawned items so it's crucial to either have this sort of background or have a very trusted associate who does. Do you like people? Some think that you don't need to be a people person to own a pawnshop, but what do you think? Can you handle the stress of serving folks who are possibly in the midst of a financial crisis? And furthermore, would you want to? How do you think you would handle a situation where your life might be at risk? Or where you need to keep a gold watch given to someone by his or her favorite grand pop? These are all things to consider before deciding to start a pawnshop, but when you're ready - we wish you the best of luck! Remember that will list your new venture for free, so don't forget to write!

If you are interested in exploring the business of pawnshops in more depth, below are some well-regarded books to get you started:


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