This is why understanding these limitations before investing in your pawnshop business is of great importance to you. These limitations can also make it very difficult to profitably run a pawnbroking business under certain circumstances. These limitations always vary from state to state and sometimes from city to city. Maximum finance charges, minimum holding times, unredeemed pledge disposal, and many other important business metrics are regulated by these statutes and need to be complied with. The regulations you fall under based on your choice of location will have a major impact on how you choose to do your business. Click to Review State Pawn Shop Laws Understand the Limitations Attempting to open a pawnshop business on a shoestring budget is a guaranteed recipe for disaster and failure. While some of these financial requirements may seem unreasonable or restrictive to you, they are in place to assist you in the success of your business. One of your best resources for this information will be the Pawnbroker’s Association for your state.īe prepared because most of these licenses take time to obtain and many have financial requirements attached to them. Realize it’s no one’s responsibility but your own to find out what licensing your pawnshop will require, knowing all of the regulations for your area, and applying for and obtaining the required licensing before doing business. A pawnbroker’s license, a precious metal dealer license, a secondhand dealer license, a general business license, but again, this depends on your location. There is no such thing as becoming a pawnbroker without some sort of business licensing, and usually this involves multiple licenses. Most pawn shops are licensed at a state level while some are licensed only at a local level, and many are licensed at both levels. Your shortcut to compliance will be to become a member of the National Pawnbrokers Association because this organization is always knowledgeable about the latest in federal requirements for the pawnbroking industry. In most cases there are severe penalties for operators either knowingly or unknowingly not in compliance with these federal regulations. Regulation within the IRS code, the US Patriot Act, the Truth in Lending Act, and many others are to be followed to the letter. Compliance with these regulations is not optional. As of this writing there are 13 regulations just at the federal level. Know the Regulationsīecoming a pawnbroker causes you to fall under a wide variety of federal, state, and local regulations. Plus you should also consider having a marketing system in place to attract qualified customers into your pawnshop and keep them returning again and again. If at least someone in your business cannot identify a diamond from a moissanite or a solid gold ring from a heavily plated ring, you will have an extremely difficult road ahead of you. In most pawnbroking operations, fine jewelry accounts for over 50% of items pledged for a pawn loan or offered for sale. The first being, will you have sufficient capital after your initial startup costs to begin building a solid pawn loan base and also to operate with negative cash flow and minimal profits for several months? If the answer to this question is no, you should not even consider opening a pawnshop until the answer is yes.Īnother thing you will need immediately, before the front door opens for the first time, is sufficient knowledge and tools to test and identify precious metals and gemstones. While I’m not suggesting you open a pawnshop with an empty showroom, what I am saying is there are many more important aspects to opening a pawnshop that should concern you first. Most wannabe pawnbrokers are overly concerned about filling up their showroom with used merchandise before opening their business. Simply stated if you do not want to be a moneylender, you should not choose to be a pawnbroker. The main business activity of any pawnshop is providing short-term credit to consumers who in turn pledge personal property as collateral for the pawn loan. I always suggest to them to consider opening a secondhand store as opposed to attempting to meet the requirements to become a licensed pawnbroker. They are shocked to discover this is not the main business activity of a legal licensed pawnshop. In talking to them I discover they are most interested in buying, selling, and trading secondhand goods. I’ve had many entrepreneurs contact me who state they are planning to open a pawnshop and are seeking my assistance. By Steve Krupnik Should I Be A Pawnbroker?