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How to Start a Pawn Shop

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Published on January 17, 2022

Updated on September 23, 2022

How to Start a Pawn Shop

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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Fast Facts

Investment range

$11,850 - $38,600

Revenue potential

$210,000 - $500,000 p.a.

Time to build

1 – 3 months

Profit potential

$50,000 - $125,000 p.a.

Industry trend

Declining

Commitment

Full-time

How to Start a Pawn Shop

Pawn shops have been around globally for centuries and are a $3 billion industry in the United States alone. Pawn shops make loans to individuals using items such as jewelry or electronics as collateral. They charge interest on the loan, and if the customer doesn’t pay the loan plus interest, the pawn shop sells the item. Pawn shops also buy items from customers and resell them at a markup. Starting your own pawn shop could be a lucrative opportunity for you to make some good money.

The pawn shop business, however, takes preparation and work, and you need to be educated about the process. Lucky for you, you’ve come to the right place, as this step-by-step guide has everything you need to know to become a pawn star.

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.

Pros

  • High Demand – 30 million Americans use pawn shops each year
  • Recurring Income – Interest on loans bring predictable income
  • Meet Interesting People – Pawn shop customers come in all shapes and sizes

Cons

  • Rules to Comply With – Pawn shops are regulated by the government
  • Loss of Value – Items purchased may decrease in value before they’re sold

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.[1]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.[2]https://www.nationalpawnbrokers.org/assets/2020/09/MediaFactsAboutPawn-3.pdf 
  • Number of businesses – There are over 9,000 pawn shops in the US.[3]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.[4]https://www.ibisworld.com/industry-statistics/employment/pawn-shops-united-states/
pawn shop industry size and growth

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.
pawn shop industry Trends and Challenges

What kind of people work in pawn shops?

  • Gender – More than 46% of pawn brokers are female, while nearly 54% are male.[5]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.[6]https://www.zippia.com/pawn-broker-jobs/education/
  • Average age – Most pawn brokers are under 44 years old.[7]https://www.zippia.com/pawn-broker-jobs/demographics/#age-statistics
pawn shop industry demographics

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 CostsBallpark RangeAverage
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. 

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.

Pawn Shop business earnings forecast

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

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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. 

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. 

You might consider targeting a niche market by specializing in a certain aspect of your industry such as jewelry.

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

What? Determine your products or services

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 business premises

You’ll need to rent out a storefront. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
pawn shop business idea rating

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

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: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

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. 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 Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

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 at Fiverr to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

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 ZenBusiness’s 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.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

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 Licenses/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.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

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. 

Marketing

Some of your business will come from the casual passerby or online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness. 

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products: 

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now”. This can sharply increase purchases. 
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers. 

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Signage – Put up eye-catching signage at your store and website. 
  • Flyering – Distribute flyers in your neighborhood and at industry events. 
  • Post a video – Post a video about your product. Try using humor and maybe it will go viral!
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Seek out referrals – Offer incentives to generate customer referrals to new clients. 
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Pay–per-click marketing – Use Google AdWords to come up faster from searches. Research your keywords first.

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. 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. 

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.

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
unique selling proposition

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: 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!

Pawn Shop Business FAQs

How much does it cost to start a pawn shop?

You can start a pawn shop for about $20,000. You need to rent and set up a shop, get a license, and have enough cash to start making loans and buying items. The more cash you have to loan, the more revenue you can start bringing in.

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.

What licenses do I need to start a pawn shop?

In most states, you need a pawnbroker’s license, as well as business licenses and permits at the state and local levels. Check with your local governments for requirements, or visit MyCorporation’s Business License Compliance page.

How much can I charge for pawn loans?

The rate you can charge depends on the maximum rate allowed by your state. Those maximums can be as low as 3% per month up to 25% per month. Check the laws of your state to find out the maximum. You may need to charge a bit lower than the maximum to compete with other pawn shops.