Pawnshop as a business

Business ideas by directions

Lending to the population has long been one of the most profitable types of business. No wonder the expression «money makes money» has become one of the main formulas for capital accumulation. Although the largest part of loans is issued by banking institutions, the origins of lending as a business lie in its simpler forms, such as issuing loans secured by collateral.

And, if it is quite difficult to open a new bank or a non-bank credit organization, then creating your own business on the basis of a pawnshop is a simpler form of lending to the population.
Although a pawnshop is actually engaged in microfinance, the risks of a pawnshop are always much lower than those of a microfinance institution.

This is due to the fact that the pawnshop issues money in return for collateral. Of course, this business cannot be called absolutely risk-free, since it is not always possible to accurately estimate the value of the accepted collateral.
However, these risks are easily covered by high interest rates, and are reduced due to the professionalism of appraisers.
Most often, gold or jewelry is accepted as collateral in a pawnshop. This allows you to give out quite large amounts, because jewelry is always expensive. In addition, accepting precious metals and jewelry as collateral allows you to reduce the cost of renting a room, since jewelry does not take up much space.

True, there are pawnshops that accept other valuables as collateral: expensive clothes, works of art, even cars. However, pledging things that are difficult to assess liquidity increases the risks of pawnshops. In addition, for receptions of the pledge of various things, it is necessary to have appropriate appraisers who are able to adequately assess the value of the thing. To accept large items as collateral, such as a car, it is necessary to have enough space for their storage, for example, guarded parking lots, which significantly increases the cost of loans issued.
For start-up entrepreneurs, the most profitable is working according to the traditional scheme, in which precious metals and jewelry are accepted as collateral.

A jeweler hired by a pawnshop as an appraiser will easily recognize fake or counterfeit jewelry and will allow you to adequately evaluate the item when accepting its pledge. In order to open your own pawnshop, it is necessary, in addition to having qualified personnel, to have a secure premises in a sufficiently visited place, in the city center or near the intersection of traffic flows. Since jewelry and gold do not take up too much space during storage, the pawnshop itself does not have to be made large. A small client room and a room with an appraiser and pawnshop employees who accept collateral and issue loans are enough.

Of course, special attention should be paid to the fortification of the premises itself and the organization of protection.
At the same time, if the room is sufficiently well fortified and has armored glass, then it is not necessary to hire a security guard. It is enough to equip the premises of the pawnshop with a video surveillance system, an alarm button and conclude a security agreement. The equipment of such premises will cost the entrepreneur within 1 million dollars.

The initial costs will also include the costs of legal registration of the company, the purchase of safes, furniture, computers and software. It should also be taken into account that in order to start work, it is necessary to have an amount of free funds that will be issued in the form of loans. To get started, 1-2 thousand dollars is enough, since, as a rule, the terms of lending to a pawnshop are short.

The main clients of the pawnshop are middle-class people who pledge valuables for a short time, hoping to redeem them in the very near future. Visitors to the pawnshop are attracted by the speed of obtaining cash and the ease of payment. However, when clients are unable to redeem collateral in a timely manner, pawnshops have to deal with their implementation. Therefore, before opening a pawnshop, it is necessary to conduct marketing research and identify not only the demand for its services and existing competition, but also points of sale for items not redeemed by customers.

The current costs of the pawnshop are mainly rent, utilities, staff salaries. If a pawnshop issues loans at the expense of not its own, but borrowed funds, then it is necessary to take into account the costs of servicing the debt in current expenses.
The profitability of a pawnshop is quite high, since the rate for issuing loans can be up to 1% per day, that is, more than 300% per annum.

This allows you to quickly reach a profit, even taking into account the risks of incorrect assessment of things accepted as collateral. There are also risks that the things accepted as collateral do not belong to the person who takes the loan. If stolen items are found, they will be confiscated without compensation for damage to the pawnshop. This also needs to be taken into account when creating a pawnshop. A properly organized business for issuing loans in exchange for collateral allows you to recoup the initial costs within one year. Nevertheless, the presence of activity risks requires a careful approach to the organization of the case, precisely calculated and economically justified actions.

You can order a detailed business plan for opening your own pawnshop on our website right now. It will allow you to take into account all the risks from the very beginning and build a successful business.