Pawnshop Business ModelThere are countless ways to become self-employed or entrepreneur. One that only springs to mind when you think of your own business is the pawnshop business. In a pawn shop, you offer people the opportunity to sell personal valuables to quickly and unbureaucratically get a larger amount of cash. Over time, the customer then has the opportunity to buy back the item (on installments). The amount of interest you charge on this “credit” usually depends on the duration of the contract. If a customer does not buy back his belongings within the agreed time, you can auction them and earn extra money. As simple as (and ingenious) the Pawnshop business model may sound, the creation of such a company is not without reason. What you have to keep in mind, if you want to open a pawn shop business, tells you the following article.

Opening a pawnshop business: what requirements must be fulfilled?

Who gives other people a loan and their private valuables in payment, of course, must bring fundamental trustworthiness and can also prove. In order for customers to be sure that their pawn shop is reputable and not ripped off, you can only set up your business with a business license. This protects the industry from black sheep and assures those people who need a short-term loan that they will see their seized object again later.

Pawnshop Business Model RequirementsIn order to obtain the business license for a pawn shop, you must generally present the following forms:

  • Criminal record certificate
  • Credit reports
  • extract from the central Register of trade and commerce
  • Excerpt from the commercial register
  • Proof of financial collateral

Depending on the state in which you want to open your pawn shop, the requirements for you are more or less strict. In particular, the proof of financial collateral there are some major fluctuations, which of course can also have a direct impact on your start-up plans. A pawnbroker in Cologne, for example, must be able to prove, prior to its founding, that he has funds of 100,000 euros or more.

Important: The business license for a pawn shop is personal. That is, it is awarded to natural persons, but also to legal persons, but can not be transferred.

Personal requirements for a pawnbroker

In addition to the legal requirements for people who want to open a pawn shop, there are of course a lot of personal requirements that you meet at best. The assignment of so-called lightning loans and the daily business in a pawn shop are not for everyone and in the first place demand one thing: the responsible use of money.

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Of course, someone who pays their personal (and often emotional) valuables to you wants to know that they are in good hands with your pawn shop. In addition, the money you receive and give you must always be organized and structured. It is normal for you to come in contact with large sums every day and move them from A to B. But once you lose track, your entire business is in danger. The high risk that you take on as a pawnbroker also means that you should rather opt for a limited liability legal form, but more about that later.

Pawnshop Business Model Required SkillsSpecific requirements for a pawnbroker include:

  • trustworthy appearance
  • responsible handling of money and valuables
  • a structured way of working
  • organizational skills
  • communication skills
  • A sure instinct in dealing with customers
  • commercial (basic) knowledge

There is no concrete training or study to the pawnbroker. However, it is advisable to work for several years in finance, before opening a pawn shop. In this way, you not only learn the responsible use of money and valuables but also basic elements of your daily work in the pawn shop, for example, the calculation of interest and the establishment of a financing plan.

Related Article: Decore Store Business.

The legal framework for the opening of a pawnshop business

If you fulfill all personal requirements and also get a business license for your pawn shop, there is hardly anything in the way of the foundation. However, before you take this big and meaningful step, you should definitely take a look at the regulation on the business operations of commercial pawnbrokers (in short: Pawnbroking Regulation) and study them very closely. This regulation forms the legal framework for your business and gives you a lot of very important information along the way.

Info: You can find the full ordinance on the business operations of commercial pawnbrokers here.

The Pawnbroker’s ordinance deals specifically with these points:

  1. The scope of the permit
  2. advertisement (the business license)
  3. accounting
  4. Acceptance of the pledge
  5. pawn ticket
  6. Storage (of the pledge)
  7. insurance
  8. recovery
  9. Interest and remuneration
  10. surpluses from recycling
  11. notice (the Pawnbroking Regulation)

Which legal form for a pawnshop business?

Pawnshop Business Model Legal FormsAnyone who wants to start a pawnshop business must inevitably also think about the legal forms. The differences between the options are sometimes large and ensure that this decision is well thought out. Most pawnbrokers opt for one of the following legal forms:

  • one-man business
  • GbR
  • GmbH
  • UG (limited liability)

Since a pawn shop – as already mentioned above – is a rather risky business. We recommend the two limited liability legal forms GmbH and GbR at this point. In the event of a business failure, these guarantee that your private property is safe and free of any insolvency proceedings.

Since you have to prove the existence of a pawnshop large financial collateral anyway, the 25,000 euros of share capital, which are required for the establishment of a limited liability company, should not be a problem.

General or specialized pawn shop?

If you take a closer look at different pawnshop business, you will quickly notice a big difference: while some seem to be paying each pawn, others have specialized in certain goods & services. Often you will find jewelry and car pawn shops.

Whether you want to do such a specialization or not depends on various factors. If you focus on certain valuables, it can bring you a certain amount of expert status and strengthen the trust. However, specialization always means narrowing your audience from the start and perhaps missing out on some lucrative business.

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