Pawnshops make money by offering short-term interest-bearing loans to customers in exchange for holding certain property as collateral. If the loan is not repaid, the pawnshop can sell the item for a profit. If you're a Texas resident who's interested in opening a pawn shop, it's important to understand what steps are involved the process. Pawnshops are regulated under Chapter 371 of the state finance code, also known as the Texas Pawnshop Act.

Things You Will Need

  • Licensing forms

  • Start-up capital

  • Inventory

  • Business location

  • Insurance

Select a location for your pawnshop. You may choose to lease a commercial space or purchase a building. When looking for a place to house your business, consider the amount of traffic the area receives, the number of competing businesses nearby and the location's compliance with local zoning laws for businesses.

Build your inventory. You can find qualify items for resale by visiting other pawnshops, yard sales, garage sales, estate sales, auction houses, online auctions and browsing the classifieds. Look for high-quality, low-cost items that have a high potential resale value.

Purchase pawnshop insurance. Choose an agency that is licensed to sell insurance in Texas and purchase a policy that covers both your property and inventory against theft, loss or damage while also providing personal liability protection. The amount of coverage you'll need depends on the value of your inventory and property and your projected annual gross income.

Register your pawnshop with the Texas Secretary of State. You must complete the appropriate filing paperwork and identify the structure of your business and its name. If you plan to do business as a sole proprietorship or general partnership, you will also need to file an Assumed Name Certificate with the county clerk's office where your business is located.

Register with the Internal Revenue Service and the Social Security Administration to obtain your federal tax identification number and get information on how to pay employment taxes. Contact the Comptroller of Public Accounts and the Texas Workforce Commission to set up your state tax ID number and unemployment taxes. You must also contact the county appraisal office to submit a complete inventory of your inventory and assets.

Apply for a pawnbroker's license through the state Office of the Consumer Credit Commissioner. The application consists of a number of different forms, including affidavits related to your employment history, a statement of your history owning or working in a pawnshop and a summary of your financial situation. You must also submit a background check, including fingerprints as well as proof of insurance.

Develop a marketing strategy for your pawnshop. Typically, you will want to concentrate your advertising in the area surrounding your business's location. You can advertise in a number of ways, including the local newspaper or phone book, handing out fliers, television and radio ads and a company website.

Tip

Consider joining the Texas Association of Pawnbrokers to network with other pawnshop owners and stay up-to-date on industry news. You must apply for a Federal Firearms License if you plan to purchase or sell guns.

Warning

Never purchase or accept any property you believe to be stolen.