Pawnshop owners carry on a tradition that can be traced back to ancient
China. Their role as collateral loan brokers who offer consumers a quick,
convenient source of small, short-term loans remains relatively unchanged.
If you're looking for variety, opening your own pawnshop provides
it. "The pawnshop is unique in that it's not a repetitive day-in-and-day-out,
same-old-thing job," says Brian Smith, president of the National Pawnbrokers
"We sell everything from heavy equipment to jet skis to car stereos to
DVD players to jewelry. There is almost nothing we will not sell," Smith says.
"Then, to make it interesting, we loan money on almost anything someone can
bring in. The same variety comes in the store as goes out the doors."
Pawnshop owner Michelle Hartwich says she never knows what might come across
her desk or how successful each day will be.
"That's the uniqueness of the business," Hartwich says. "You may have
only one hammer today, it's gone tomorrow and it's not like you
can order another one."
Michael Isman has been in the business for 47 years. He says that getting
started may be the biggest hurdle to owning your own pawnshop.
"You need to have $50,000 to $100,000, you have to have some inventory
to sell as well as showcases [to display it] and you have to have money to
lend," says Isman.
"It's difficult to start from scratch. I ran a grocery business and
went from there," says Ted Pincher. He has owned a pawnshop since 1984. "You
need a lot of capital to do it correctly."
Pincher says that owning a pawnshop can be a lucrative business, but it
might take as many as 10 years before you see a profit.
Hartwich agrees. "We're only in our third year. We haven't made
any money yet, but we're having a lot of fun," she says.
Isman says the second hurdle to owning your own pawnshop is knowing how
much items are worth. "You have to know [product] values, to be able to look
at [an item] and know how much to sell it for in order to determine what to
loan it for," he says.
Knowledge of the value of a wide variety of products, particularly gold
and jewelry, is a must. Pawnbrokers need to know the retail price and current
market price of every item on which they loan.
Pincher says pawnbrokers must also watch trends. At one time, his shop
loaned $200 for VCRs; now, such items are almost worthless. "Items change,
and [item] values change," he says.
Pawnbrokers agree that knowing values isn't something that can be
learned at school. "I don't think you can learn that in any course,"
says Pincher. He says this knowledge comes with experience.
As a member of the National Pawnbrokers Association, he also relies on
the organization to provide research on new items and other educational support.
"We get a lot of valuable information from the association," Isman agrees.
"It provides advice, trading, networking and a single united voice when dealing
Both Isman and Smith recommend working in the business before opening your
"Take a job as a salesperson in a pawnshop, and get to know what things
are worth and how the business works," says Smith. "It is much more complex
than it seems."
He says that working at a department store, reading the classified ads
or doing anything else that can increase your product value knowledge of items
that could end up in a pawnshop is helpful. "If you loan too much on an item,
you decrease your profit in most cases," says Smith.
"You should know something about marketing, storage and finances," adds
Isman. "Even university business programs don't teach [entrepreneurship].
You need experience."
Once you have the capital and feel confident about your knowledge of product
values, it's important to find a suitable business location.
Pawnshops are highly regulated by state and local governments. Individual
cities usually have local laws that may limit the number of pawnshops and
specify the locations where they may operate. Some place pawnshops in industrial
parks, "but there's no way you can make money out there," says Isman.
Most successful pawnshops are located in the downtown core. "A location
with high traffic is a must, as with any retail establishment," says Smith.
In addition to knowledge, a good location and the necessary licenses, pawnbrokers
need good people skills.
"It's a hard-nosed business. When someone comes in with an item, you
can't listen to their stories. You have to go beyond and look at the
item," says Pincher.
Hartwich says that's her least favorite part of the business. "You
have to think with your head, not your heart," she says. "There are a lot
of sob stories....People promising to buy things back. No matter how sad the
story is, you have to justify the loan."
Making the loan is just half of the business. Pawnbrokers also manage a
retail store. Hartwich says she's trying to promote the recycling aspect
of the pawnshop.
It's important to have clean, well-lit stores with clean merchandise.
"This is not a flea market, so do not treat it like one. Make your sales floor
well organized with clearly defined sections for electronics, jewelry, tools,
etc.," says Smith. He says cleanliness and the move to high-profile locations
has improved the reputation of pawnshops.
Smith says that now, most cities see pawnshops as legitimate businesses
that pay taxes and hire people, just like other businesses.
"In the past, the poor reputation was earned, but we have done a good job
dispelling those old scenarios and running clean, respectable operations,"
he says. "Nowadays, if you do not run a respectable business, you will not
Pawnshops have lived with the reputation as fencers, but Isman says that
"this has nothing to do with reality." He says it's important to note
that all people and goods that come into a pawnshop must be reported to police
within 24 hours.
"The incidence of stolen property is [about] less than one-10th of one
percent of all property brought to pawnshops. [Criminals] are by and large
going to avoid pawnshops because they're going to get caught.
"The odd item comes through...but it's likely that it's 18 months
old, has changed hands many times and the guy [who] brings it in hasn't
got a clue it's stolen," says Isman.
Like many businesses, word of mouth is the best advertising for pawnshops.
Owners also use the Internet.
Isman uses the Internet not only for sales and promotion, but also to look
up the value of items. "You can see what it will sell for,...get a real-world
price. You no longer have to be concerned, 'Can I sell this item in a
showcase?' but 'Will it sell on eBay?'" he says.
As long as consumers continue to require short-term credit, pawnshops will
be a vital part of the economy. Smith says that if you're well-prepared
and have the capital, the pawnshop business might be for you.
"This is a good time to get in the business. The barrier to entry right
now [is] cash, but there is a huge loan demand due to the recession."
"Entrepreneurship is the only way to go," says Isman. "And unless there's
massive incompetence, pawnshops never go out of business."
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