With the popularity of the History Channel show “Pawn Stars," interest may have piqued in some business-minded people to start their own pawn shops. In challenging financial times, these types of businesses can pull in healthy profits due to people pawning items for loan money. But starting a pawn shop can be a little more protracted than some other businesses.
Getting a License
You’ll need to get a pawn-broking license before you can get started. This process can take a little while due to the items you need to submit to your state’s Department of Financial Institutions or similar agency. It’s there where you can pick up an application that can require a fee of sometimes up to $2,000, depending on your state. Afterward, you need to send the DFI a financial statement written up by an accountant that shows your net worth. You also need to send in a credit report, proof that you have experience in finance with reference letters, and proof of no criminal record.
In many states, you may need to obtain a sales tax license before you can start your business. Check your state to see what the licensing requirements are. You may also want to sell guns in your pawn shop. If that’s the case, you can get a firearms license from the Bureau of Alcohol, Tobacco, Firearms and Explosives through the Department of Treasury.
Choosing the Right Location
The site WeSellItallDickerDealHere.com, on starting a pawn shop, says that location doesn’t necessarily matter as long as you aren’t too far out of the way of where people congregate. Most importantly, it’s a good idea to rent a building that has enough space to store your inventory, especially those items people want to pawn for a loan.
Buying, Valuing and Selling Items
While operating a pawn shop, buying items and knowing what to pay for them are key success. Knowledge is always a powerful tool in deciding what to pay for an item so you can make a profit later. Research items on eBay, in local want ads and via general search engines to determine what to pay for an item and what price to set to sell it in your shop. Always consider depreciation on items as well. For items that may not sell well in your store or local area, sell them through online auctions like eBay or Craig's List.
Dealing With Those Who Pawn
This is why pawn shops are called what they are. While you might buy and sell items regularly, someone will walk through your door to offer an item that you can use as collateral for a loan. Some of these people may be in dire financial circumstances or need money for other reasons in their lives, some that might have emotional aspects. It’s important to not get so emotionally involved in their personal story (though you can be sympathetic or empathetic) that you lose your sense of financial judgment. But always be fair in deciding what you think an item is worth for the customer’s loan. If the person can’t pay the loan back, you have the legal right to keep the item and sell it in your store.