Business Overview

A pawn shop offers customers collateral loans and buys, sells and trades items of value. Pawn shops allow customers to pawn (or hock) something valuable in exchange for a short-term loan. If the customer returns the money, and the interest due on the loan, the item is returned. But when the customer cannot pay back the loan, the person who owns the pawn shop, or the pawnbroker, sells the item for a profit.

Who is this business right for?

Many people view pawn shops as operating in the gray area between being legal and illegal. While this is mostly untrue, it is important for successful pawnbrokers to maintain a good reputation in the community. Due to the nature of the business, it is helpful if an owner of a pawn shop is someone who is able to get along with a wide variety of people.

What happens during a typical day at a pawn shop?

An owner of a pawn shop usually spends a lot of time maintaining records, filing reports, and doing inventory. At other times, the owner is responsible for making appraisals, buying, and selling items.

What is the target market?

Since a pawn shop makes money in multiple ways, it needs to attract more than one type of customers to be successful. In order to make money off short-term collateral loans, the shop must have customers who need cash to pay for something immediately, do not have or do not want to use other forms of credit, and has a source of income to pay off the loan and interest to redeem the item. To make a profit by selling items, the pawn shop needs customers who want to save money buying secondhand items.

How does a pawn shop make money?

Pawn shops make money in two ways. The first way is to offer collateral loans and to make money on the interest rate. The second way is to sell items at a profit.

What is the growth potential for a pawn shop?

According to Pawn Shops Today, the number of defaults on collateral loans is increasing, while the ability to resell pawned items is decreasing.