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How to Open a Pawn Shop

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As a pawn broker, you're a grantor of short-term loans and a dealer of second- hand or pre-owned goods -- including jewelry, electronics and weapons. You will also enter a heavily-regulated industry in which certain customers try to use pawn shops to fence stolen items. To start your shop, you must be ready to meet various federal, state and local laws and to protect your customers, inventory, pawned items and money.

Start-Up Figures

Figure on between $50,000 and $100,000 for startup costs, especially for initial inventory and cash to lend. Your state may impose financial requirements for you to be licesened. For example, Texas requires that you have at least $150,000 in net assets, meaning money or property not encumbered by a debt. In Indiana, you must have $75,000 in net assets and $50,000 in liquid assets -- cash, stocks or other assets that you can easily convert to cash. To be licensed in Florida, you need either $50,000 in net assets, a $10,000 bond or a $10,000 certificate of deposit to cover losses.

Additional Licenses Needed

Depending on what you accept for pawning or resale, you'll need more than a pawn broker's license. You must get a dealer's license -- which includes pawn brokers -- from the U.S.Bureau of Alcohol, Tobacco, Firearms and Explosives to take items such as pistols, rifles and ammunition. Your state may require of you a precious metals license if you're going to buy gold or silver- made items and resell them for a profit. You may also need second-hand dealer's license to buy used items for resale.

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Customer Base

Consider a location with a high volume of traffic or large population, especially for the loan side of your business. The National Pawnbrokers Association warns that locating in rural or sparsely populated areas may not generate sufficient loans to cover overhead or reap profits, especially if your state has low caps on finance charges and interest rates. According to the College Foundation of North Carolina, downtown shops are most likely to succeed. The NPA suggests that 80 percent of pawn shop customers generally are within an eight-mile radius of the shop.

Computes and Software

You will need computers and software designed for pawn brokers. The computers will help you access online valuation guides for merchandise pawned or that you buy for resale. Software will help you keep track of inventory, loans and sales. Also, most states require you to report within 24 hours when you accept an,item for spawning or to resell, so that the police can detect stolen property. Check with your local police department to see if they offer free equipment for reporting your transactions.

Security Systems and Safes

According to Stonebridge Underwriters, thefts and burglaries account for 70 percent of pawn shop losses. The type of system can affect how much insurance coverage you'll have for losses. Stonebridge Underwriters says the best coverage comes with a system that is monitored from a central location by the provider who can contact police and dispatch guards. When selecting a safe for jewelry and firearms, consider the rating in terms of how long it would take someone to crack it. Find security cameras to record customers and employees.

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