How to start a pawn shop business and get it right

Starting a pawn shop is a rewarding venture that combines a sharp eye for value and strong negotiation skills with business savvy. The industry pulls in billions of dollars annually, fueled by a steady demand for short-term loans and secondhand goods from a wide range of customers.

This guide will take you through the practical steps of obtaining the right licenses, securing funding, selecting a location, and acquiring inventory to help you launch a successful pawn shop business in the U.S.

Step 1: Plan your business and validate the market

Start by analyzing your local area. Use U.S. Census Bureau data to understand demographics. You are looking for a community with a diverse mix of income levels, as this can broaden both your customer base for loans and your sources for quality secondhand goods.

A common misstep is choosing a location based only on low rent. A spot with high foot traffic and good visibility is often worth the extra cost. You might want to spend a few days observing potential locations to gauge the flow of people before making a commitment.

Analyze your competition

Use Google Maps to identify all pawn shops in your target area. Visit them as a customer to observe their inventory, store layout, and customer service style. Noting their strengths and weaknesses will help you find a gap in the market that your business can fill.

Estimate your startup costs

With a clearer picture of the market, you can build your budget. Startup costs for a pawn shop typically range from $60,000 to over $200,000, depending heavily on location and the initial cash you have on hand for loans and inventory.

• Licensing and legal fees: $1,000 - $5,000
• Security system (cameras, safes): $5,000 - $15,000
• Store setup and software: $3,000 - $10,000
• Initial cash for loans and inventory: $50,000 - $150,000+

Your cash reserve for making loans and buying inventory will likely be your largest initial investment. Underfunding this part means you cannot serve customers effectively, so plan this capital carefully from the start.

Here are 3 immediate steps to take:

• Research the demographics for two potential neighborhoods using census data.
• Visit at least two competing pawn shops to observe their operations.
• Create a draft budget with estimated startup costs for your specific area.

Step 2: Set up your legal structure and get licensed

Most new pawn shop owners form a Limited Liability Company (LLC). This structure protects your personal assets, like your house and car, if the business faces debt or lawsuits. An S Corporation is another option with different tax benefits, but the setup is more complex.

Secure your licenses and permits

Pawn shops are heavily regulated. You will need licenses at the federal, state, and local levels. The process can take 60-120 days, so start early. Many new owners underestimate the paperwork involved, which can delay opening day.

Here is what you typically need:

• Federal: If you plan to deal in firearms, you need a Federal Firearms License (FFL) from the ATF. The application fee is about $200 for three years.
• State: You will need a state-specific Pawnbroker License. Check with your state’s Department of Financial Institutions. Costs vary from $500 to over $2,500.
• Local: Contact your city or county clerk for a general Business License and potentially a Secondhand Dealer Permit. These usually cost between $50 and $200.

Be aware that agencies like the Consumer Financial Protection Bureau (CFPB) also have rules you must follow for consumer loans. Your state license will outline the maximum interest rates you can charge.

Here are 3 immediate steps to take:

• Decide on your business structure and file the formation paperwork for an LLC.
• Visit your state’s government website to find the Pawnbroker License application and its requirements.
• Call your local city hall to ask about the specific business permits needed for a pawn shop.

Step 3: Secure your insurance and manage risk

Protecting your business from day one is non-negotiable. A pawn shop faces unique risks, from theft to liability for pawned items. You will need a package of specific insurance policies to operate safely.

Find the right coverage

Many new owners assume their general property insurance covers customers' pawned items, but it does not. For that, you need Bailee’s Coverage, which protects goods you hold in trust. This is one of the most important policies you will buy.

Your insurance package should include:

• Bailee’s Coverage: Protects customers' pawned items from theft or damage.
• General Liability: Covers customer injuries on your premises. A $1 million policy is standard.
• Commercial Property: Insures your building and owned inventory.
• Workers’ Compensation: Required in most states if you hire employees.

A comprehensive policy package can cost between $4,000 and $12,000 annually. You might want to work with an insurance broker who specializes in pawn shops, such as Jewelers Mutual or a local agent with experience in high-risk retail. They understand the specific liabilities, including those related to firearms sales.

Here are 3 immediate steps to take:

• Contact two insurance brokers who specialize in pawn shops to request quotes.
• Calculate the estimated value of pawned goods you expect to hold to determine your Bailee’s Coverage needs.
• Check your state’s requirements for Workers’ Compensation insurance.

Step 4: Find a location and buy equipment

Select your storefront

Look for a commercial space between 1,500 and 2,500 square feet. This gives you enough room for a retail floor and a secure back office. Before you sign anything, confirm the local zoning laws with your city’s planning department to ensure a pawn shop is permitted.

When you negotiate a lease, be upfront about your business. Some landlords are hesitant, so a professional business plan can build confidence. You might want to ask for a 3-5 year lease with an option to renew and confirm you can make security upgrades like bolting down safes.

Purchase your gear

With your location secured, it is time to equip it. Your point-of-sale (POS) system is a major purchase because it manages loans, inventory, and police reports. You will also need robust security hardware to protect your assets and pawned goods.

Here is a breakdown of what you will need:

• Pawn Shop Software: Systems like Bravo or PawnMaster manage compliance and transactions. Expect to pay $1,500 to $5,000 for setup.
• Security Safes: A TL-15 rated safe for jewelry and a separate gun safe are standard. Costs range from $2,000 to $10,000+.
• Display Cases: Glass counters and wall units can cost $300 to $1,500 each. You can often find these used to save money.
• Valuation Tools: Basic gold test kits and diamond testers run from $50 to $500.

Here are 3 immediate steps to take:

• Contact your local planning department to verify zoning for a pawn shop in your desired area.
• Request demos and pricing from two pawn software providers, such as Bravo or PawnMaster.
• Create an equipment budget, researching costs for both new and used items like safes and display cases.

Step 5: Set up payment processing

Your pawn shop will have two main financial flows: paying cash for loans and inventory, and accepting payments for retail sales. While loans are cash-based, most of your sales will come from customers who expect to pay with a card.

Choose your payment solution

When you look at payment solutions, keep a close eye on transaction fees. Many providers charge between 2.5% and 3.5% plus monthly fees, which directly cuts into your profit on every item you sell. You will want a system that is simple and transparent.

For pawn shops that need to accept payments on-site, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone. Just tap and you are done. At just 1.99% per transaction with no hidden costs or extra hardware needed, it is particularly useful for quick counter sales.

Here is how it works:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done. There is no waiting for bank transfers.

Here are 3 immediate steps to take:

• Compare the 1.99% rate from JIM with two other payment processors to see the potential savings.
• Decide if a mobile-only payment system fits your planned store layout.
• Download the JIM app to explore its interface.

Step 6: Fund your business and manage finances

Explore your funding options

The SBA 7(a) loan is a popular choice for new pawn shops. Lenders typically offer between $50,000 and $250,000, with interest rates around Prime + 2% to 5%. Your business plan and personal credit score are the most important factors for qualification.

You might also want to approach local community banks or credit unions. They often have a better feel for the local market than large national banks and may be more open to funding a pawn shop, especially with a well-researched business plan in hand.

Plan your working capital

Your working capital is the money you need for day-to-day operations. You should have enough cash to cover at least six months of expenses like rent, insurance, and payroll. This fund must be separate from the cash you use for loans and inventory purchases.

Some new owners make the mistake of using their operational cash to make a large loan or inventory buy. This can leave you unable to pay rent or staff. If your monthly expenses are $5,000, you need a dedicated $30,000 in working capital from day one.

Here are 3 immediate steps to take:

• Contact an SBA-preferred lender to discuss the 7(a) loan application process.
• Calculate your estimated operating expenses for six months to find your working capital target.
• Prepare a detailed business plan to present to local banks and credit unions.

Step 7: Hire your team and set up operations

Build your core team

Your first hire will likely be a Pawnbroker or Sales Associate. This person handles customer service, appraises items, and processes both loans and sales. Expect to pay between $15 and $25 per hour, depending on their experience with valuation and sales.

Many new owners focus only on appraisal skills. Remember this is a customer-facing role. You need someone with patience and strong communication skills, as you will often work with people in stressful financial situations. A bad customer experience can quickly damage your reputation.

As you grow, you might hire a Store Manager to oversee daily operations, compliance, and staff scheduling. This role typically commands a salary between $45,000 and $65,000 annually. This frees you up to focus on business strategy and high-level inventory acquisition.

Focus on training and compliance

Proper training is vital. For jewelry, having an employee with a Gemological Institute of America (GIA) certification adds immense credibility and reduces valuation errors. You should also provide thorough training on your pawn software and all state and local reporting laws.

For staffing levels, a good benchmark is to plan for one full-time employee for every $300,000 to $500,000 in annual revenue. To start, you might operate the store yourself with one part-time associate. For scheduling, simple apps like Homebase work well for small teams.

Here are 3 immediate steps to take:

• Draft a job description for a Pawnbroker/Sales Associate, emphasizing both appraisal and customer service skills.
• Look into introductory courses from the Gemological Institute of America (GIA) for basic gem identification.
• Create a simple employee handbook that outlines your policies on loan procedures and compliance reporting.

Step 8: Market your business and acquire customers

Focus on local digital marketing

Your first customers will be local. Claim and complete your Google Business Profile immediately. This puts you on the map for people searching "pawn shop near me." Encourage your first few happy customers to leave reviews. A handful of positive reviews can significantly boost visibility.

A simple website is also a good idea. Focus on keywords like "cash for gold [Your City]" or "sell electronics [Your Town]". You can also use a Facebook page to showcase interesting inventory. A mistake many make is just posting prices. Instead, tell a short story about a unique find.

Build community trust offline

Many owners forget about old-school methods that still work. You might want to distribute flyers at local community centers or laundromats. Building relationships with other small business owners, like auto mechanics or barbers, can also lead to valuable word-of-mouth referrals.

A common mistake is spending big on broad newspaper or radio ads too early. Your marketing budget, perhaps $500 to $1,500 a month to start, is better spent hyper-locally. Simply ask customers how they heard about you to see what is working.

Here are 3 immediate steps to take:

• Claim and fully complete your Google Business Profile with photos of your store.
• Design a simple flyer with your address, hours, and services offered.
• Ask your first 10 customers how they found out about your shop to track what works.

Step 9: Set your pricing and loan strategy

Your pricing strategy has two parts: the interest you charge on loans and the markup on items you sell. State law dictates the maximum interest rate for pawn loans, which often falls between 15% and 25% per month. Check your state’s pawnbroker regulations for the exact cap.

Price your retail inventory

For retail sales, a common starting point is to double what you paid for an item, a 100% markup. However, you should adjust this based on the product category. Electronics typically have lower margins of 30-50%, while jewelry can command markups of 100% to 300%.

To set competitive prices, research what similar items have recently sold for on eBay. Use the "Sold Items" filter for accurate market values. You can also visit competing pawn shops to see their pricing for items like tools, game consoles, and musical instruments.

A mistake some new owners make is offering too little on loans to maximize profit. A fair loan offer, around 40-60% of an item's resale value, builds trust and encourages repeat business. You might also want a markdown plan, like reducing the price by 25% on any item that sits for over 90 days.

Here are 3 immediate steps to take:

• Look up your state’s maximum legal interest rate for pawn loans.
• Use eBay’s "Sold Items" filter to find the market value for five common product types.
• Create a draft pricing sheet with your target loan-to-value ratio and retail markups for different categories.

Step 10: Control quality and scale your business

Set your quality benchmarks

For jewelry, a Gemological Institute of America (GIA) certification for you or an employee adds significant credibility. It helps you avoid overpaying for fakes and builds customer trust. This is a standard many successful shops adopt.

You should also track your loan redemption rate. A healthy rate is 80-85%. If it falls below 75%, your loan offers are likely too high, which hurts your cash flow when items are forfeited instead of redeemed.

Plan your growth

When should you hire more staff? A good benchmark is to add one full-time employee for every $300,000 to $500,000 in annual revenue. Many owners hire too soon, which strains the payroll before revenue can support it.

Before you think about a second location, make sure your pawn software can handle it. Systems like PawnMaster or Bravo offer multi-store management features. This lets you track inventory and loans across all shops from one dashboard.

Here are 3 immediate steps to take:

• Calculate your loan redemption rate for the last 30 days.
• Research the cost and time for an introductory GIA course.
• Review your pawn software’s features for advanced inventory and employee management.

You now have the blueprint to open your pawn shop. Remember that your reputation for fairness is your most valuable asset. Offer fair loan values and treat every customer with respect. With a solid plan, you are ready to build a cornerstone business in your community.

As you manage daily sales, a simple payment process helps. JIM lets you accept cards right on your smartphone for a flat 1.99% fee, with no extra hardware needed. Your funds are available instantly. Download JIM to get started.