Trading Treasures: How to Start a Pawn Shop

Key considerations to keep in mind when opening your pawn shop:

1. Location — Choose a location with high foot traffic and visibility, such as near shopping centers, busy streets, or residential areas.
2. Licenses and permits — Get a pawn shop license from your state or local authorities. This often requires background checks and fingerprinting. Also, you might have to get a secondhand dealer license if required in your area.
3. Compliance — Ensure compliance with local, state, and federal regulations, such as the Truth in Lending Act, the Equal Credit Opportunity Act, and the Gramm-Leach-Bliley Act.
4. Niche and services — Decide on the types of items you will accept, such as jewelry, electronics, musical instruments, tools, and collectibles. Ensure you have the expertise to appraise these items accurately.
5. Security — Implement robust security measures, such as surveillance cameras, alarm systems, safes, and reinforced display cases, to protect your inventory and customers.
6. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or choose one of the top services available.
7. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
8. Online presence — Create a professional website with detailed information about your services, loan terms, accepted items, and contact information. Get listed on Google Business and Yelp and encourage positive reviews.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a pawn shop has pros and cons to consider before deciding if it’s right for you.

Pawn shop industry trends

Pawn shops have mixed consequences during economic downturns. More people pawn or sell their items when they have less income, but they are more likely to default on their loans, and people are less likely to buy items.

Industry size and growth

• Industry size and past growth – The pawn shop industry in the United States was valued at $3 billion in 2021.((https://www.ibisworld.com/industry-statistics/market-size/pawn-shops-united-states/)) 
• Growth forecast – There’s opportunity for growth as the National Pawnbrokers’ Association says pawn shops are an important lending option for nearly 40 million unbanked or underbanked Americans.((https://www.nationalpawnbrokers.org/assets/2020/09/MediaFactsAboutPawn-3.pdf)) 
• Number of businesses – There are over 9,000 pawn shops in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/pawn-shops-united-states/)) 
• Number of people employed – More than 70,000 people are employed in pawn shops.((https://www.ibisworld.com/industry-statistics/employment/pawn-shops-united-states/))

Trends and challenges

Trends in the industry include:

• Electronics are the most commonly pawned items, followed by antiques and collectibles. In some southern and western states, guns are pawned at high rates, while in states like Colorado and Florida, cars are frequently pawned. 
• Currently, most pawn shop customers pawn their items for loans, rather than selling them to the pawn shop. This means that for pawn shop owners, interest income is their most important source of revenue.

Some challenges exist in the industry which include:

• Pawn shop revenue has been unstable over the last five years as the economy has had ups and downs. The economic sensitivity of the industry presents a risk for pawn shop owners.
• The future of pawn shops due to economic fluctuations may depend on buying and selling items, particularly online, rather than providing loans, which may be challenging. Having your own website to sell your pawn shop items is competitive due to sites like eBay, so it may be advisable for pawn shop owners to use eBay and Amazon or other marketplaces to sell items.

What kind of people work in pawn shops?

• Gender – More than 46% of pawn brokers are female, while nearly 54% are male.((https://www.zippia.com/pawn-broker-jobs/demographics/#gender-statistics))
• Average level of education – 47% of pawn brokers finished high school while 21% hold an associate degree.((https://www.zippia.com/pawn-broker-jobs/education/))
• Average age – Most pawn brokers are under 44 years old.((https://www.zippia.com/pawn-broker-jobs/demographics/#age-statistics))

How much does it cost to start a pawn shop business?

Startup costs for a pawn shop range from about $20,000 to nearly $40,000. The main costs are for a shop rental deposit, shop preparation, and cash to make loans and to purchase items for inventory. Also included is the cost of a pawnbroker’s license.

You’ll need a handful of items to successfully launch your pawn shop business, including: 

• Counter and cabinets that lock
• Safes
• Jewelry testing equipment
• Computer and POS system
• Security system

Start-up Costs	Ballpark Range	Average
Setting up a business name and corportation	$150 - $200	$175
Licenses and permits	$100 - $300	$200
Insurance	$100 - $300	$200
Business cards and brochures	$200 - $300	$250
Website setup	$1,000 - $3,000	$2,000
Shop rental security deposit	$1,500 - $3,000	$2,250
Shop preparation with security items like safes and locked cabinets and a computer	$3,000 - $10,000	$6,500
Pawnbroker license	$800 - $1,500	$1,150
Cash to make loans and purchases	$5,000 - $20,000	$12,500
Total	$11,850 - $38,600	$25,225

How much can you earn from a pawn shop business?

Pawn shop revenue is difficult to predict. The maximum interest rate that you can charge on pawn loans varies by state and could be anywhere from 3% per month to 25% per month. Markups on sold items are generally between 50% and 100%. You should expect a profit margin of about 25% overall. Use our markup calculator to calculate your sale price and how much revenue and profit you will earn with different markup percentages.

In your first year or two if you bring in $2,500 per month in interest and sell $500 worth of items per day, you’ll be bringing in over $210,000 in annual revenue. This would mean over $50,000 in profit, assuming that 25% margin. As your brand gains recognition, you could bring in $10,000 in interest per month and sell $1,000 worth of items per day. With expected annual revenue of nearing $500,000, you would make close to $125,000.

What barriers to entry are there?

There are a few barriers to entry for a pawn shop. Your biggest challenges will be:

• It takes some money to get started
• You need to find a shop to rent in your area where you don’t have close competition

Step 2: Hone Your Idea

Now that you know what’s involved in starting a pawn shop, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research pawn shops in your area to examine their products and services, price points, customer reviews, and what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a pawn shop in a certain area. 

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products

Your products will be based on what people bring to you unless you decide to specialize in a certain item like jewelry. 

How much should you charge for pawn shop items and loans?

The interest rate you charge will depend on the maximum allowed by your state. On items that you purchase and sell, you should buy them at prices you can mark up 50% to 100%. You should aim for a profit margin of 25%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price point. Remember, the price you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be very broad, so you should market yourself on a variety of social media sites including Facebook, Instagram, and TikTok. 

Where? Choose your pawn shop location

The location of your pawn shop is crucial to attracting customers and ensuring its success. Look for a spot in a busy commercial district with high foot traffic, such as a shopping mall or a popular downtown area. Consider accessibility and convenience, ensuring that the location is easily reachable by public transportation and has ample parking.

Depending on the type of pawn shop you plan to start, you may also want to consider the proximity to complementary businesses, such as antique stores or jewelers.

When selecting a location, ensure that it meets all necessary safety and regulatory requirements for pawn shops. By strategically choosing the right location, you can establish a profitable and successful pawn shop that provides high-quality services to customers and stands out in the competitive retail industry.

Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

Step 3: Brainstorm a Pawn Shop Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “pawn” or “pawn shop”, boosts SEO
• Name should allow for expansion, for ex: “Gold Rush Pawn” over “Antique Pawn”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Pawn Shop Business Plan

Here are the key components of a business plan:

• Executive Summary: A brief overview of your pawn shop business, summarizing key points and objectives.
• Business Overview: Detailed information about the nature of your pawn shop, its mission, vision, and the problem it aims to solve in the market.
• Product and Services: Clearly outline the range of items your pawn shop will accept and the services you’ll provide, such as pawn loans and retail sales.
• Market Analysis: Research on the local market, target customer demographics, and trends affecting the pawn industry.
• Competitive Analysis: Identification and evaluation of key competitors in the pawn industry, highlighting your shop’s unique selling points.
• Sales and Marketing: Strategies for attracting customers, building brand awareness, and promoting your pawn services and inventory.
• Management Team: Introduce the key individuals responsible for running the pawn shop and their relevant skills and experience.
• Operations Plan: Details on day-to-day operations, from accepting items to managing inventory and security measures.
• Financial Plan: Projections of expenses, revenue, and profit, including startup costs, operating expenses, and expected income from pawn transactions and sales.
• Appendix: Additional supporting documents and information, such as legal documents, permits, and any other relevant materials.

If you’ve never created a business plan before, it can be an intimidating task. You might consider finding and hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to pawn shops

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your pawn shop will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that most new business owners choose an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank loans or SBA loans are probably the best option for funding a pawn shop business.

Step 8: Apply for Pawn Shop Business Licenses and Permits

Starting a pawn shop business requires obtaining a number of licenses and permits from local, state, and federal governments.

Most states will require you to have a pawnbroker’s license which involves meeting certain educational requirements. States also have specific rules related to pawn shops that you need to be familiar with. Check with your state for requirements.

Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level licenses and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account. Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your pawn shop business as a sole proprietorship. 

Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You can use industry-specific software, such as PawnMaster, PawnMate, or Bravo, to manage your purchases and sales, inventory, loans, and customers.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial. 

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are practical strategies to boost your pawn shop business:

• Community Engagement: Engage with local events, sponsorships, and community initiatives to build trust and visibility, emphasizing your commitment to supporting the community.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Unique Promotions: Create enticing promotions such as discounted interest rates, special deals on certain items, or loyalty programs to attract and retain customers.
• Social Media Presence: Leverage social media platforms to showcase unique items, share success stories, and engage with your audience, creating an online community around your pawn shop.
• Educational Content: Develop content that educates customers on the pawn process, value of items, and tips for securing loans, establishing your shop as a reliable source of information.
• Strategic Signage: Use clear and attractive signage to communicate your services, values, and any ongoing promotions, ensuring that passersby are aware of what your pawn shop offers.
• Cross-Promotions: Partner with local businesses to cross-promote services, providing mutual benefits and expanding your reach within the community.
• Customer Testimonials: Showcase positive customer experiences through testimonials, both online and within your physical store, to build trust and credibility.
• Themed Events: Host themed events or sales, such as “Jewelry Week” or “Tech Tuesday,” to create excitement and draw in customers with specific interests.
• Referral Programs: Implement a referral program that rewards existing customers for referring new clients, encouraging word-of-mouth marketing.
• Dynamic Merchandising: Regularly update your merchandise display to keep the inventory fresh and interesting, encouraging repeat visits from customers curious about new arrivals.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your pawn shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your pawn shop business could be:

• Guaranteed loans for less
• Pawn your fine jewelry for the lowest rates in town
• Sell your gold and silver for top dollar

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a pawn shop business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in pawn shops for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in pawn shops. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a pawn shop business would include:

• Pawn Shop Clerks – buy and sell items, make loans, customer service
• General Manager – scheduling, staff management, accounting
• Marketing Lead – SEO strategies, social media, other marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Pawn Shop – Start Making Money!

Pawn shops can be big business and are a $3 billion industry in the United States. If you start a pawn shop you can make good money and eventually open multiple locations and have a pawn empire. You’ll never have a dull day in the pawn business either since you’ll never know who or what might be coming in. 

Now that you have armed yourself with a load of information, you’re ready to start your entrepreneurial journey to becoming a pawn star!

Frequently Asked Topics

How profitable is a pawn shop?

You can make money from interest on loans, and from buying items and selling them at a markup. You can also sell the pawned items if loans with interest are not made on time. You should buy items at a price that you can markup at least 50% to 100%. That part of your business alone can make you a healthy profit.

How can I differentiate my pawn shop from competitors in the market?

Offer unique services like online pawn options or specialized expertise in certain types of items, and provide transparent pricing and fair valuations to differentiate your pawn shop.

Can I start a pawn shop on the side?

Starting a pawn shop on the side is possible, but it requires thorough understanding of local regulations, licensing requirements, and the ability to dedicate time and resources to manage the business effectively.

How to attract new clients to my pawn shop?

Use targeted marketing strategies, such as local advertising, social media promotions, and partnerships with complementary businesses, to attract new clients to your pawn shop.

How can I protect myself against potential fraud or stolen items in my pawn shop?

Implement strict verification procedures, maintain detailed records of transactions, and collaborate with law enforcement agencies to minimize the risk of fraud or dealing with stolen items in your pawn shop.

What types of items can a pawn shop accept as collateral?

Pawn shops can accept a wide range of items as collateral, including jewelry, watches, electronics, musical instruments, firearms, and valuable collectibles. The specific items accepted may vary depending on local laws and the policies of your pawn shop.