How to Open a Pawn Shop in California

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Pawn shops have been around in various forms for thousands of years. Whenever someone has needed cash in a hurry, someone else was there to provide it in exchange for personal valuables. During the Great Depression, pawn shops were one of the few available sources of cash loans. Today, pawn shops serve as a good business for those who want help others turn their personal items into a loan or cash.

Plan the fundamentals of the business. Assemble your business plan with projected sales and expenses related to operating your pawn shop. Choose a potential store location, and consult with a tax accountant to choose an appropriate business structure. Set up a plan for marketing activities and advertising that will be used to promote your pawn shop.

Understand the legalities of the pawn shop business in California. For example, California law places limits on the maximum amount that can be loaned to a customer, as well as the level of interest rates charged. Obtain a general business license and permit from the city where you intend to do business. Join the California Pawn Broker Association to seek advice from those already in the business.

Obtain and complete the California Department of Justice, or DOJ, application for pawnbrokers. The application is part of a book that includes all of the requirements. As part of the application process, a person must obtain a secondhand dealer’s license and supply his fingerprints. He must also agree to uphold operational requirements, such as holding all pledged items for 30 days before selling, and make daily reports to law enforcement regarding every item pledged. Individuals may also need to obtain a California pawn broker's license.

Familiarize yourself with the California financial code. Regulations for pawn shops are contained in sections 21200 to 21209. This describes the specific details of finance that apply to pawn shops. This portion of the California financial code is also contained for reference in California's DOJ application.

Secure insurance for your business. California pawnbrokers are required to carry a surety bond for $20,000 of coverage. They are also required to purchase a financial surety bond for $100,000, or submit to a financial and credit review.

Learn to appraise items appropriately. A pawn shop will receive a variety of items from customers, including gold, silver, musical instruments and technology items. A pawn broker must be able to accurately value each item in order to price it below the market for easy liquidation and still retain a profit. Additionally, pawn brokers may want to locate a few appraisal experts to bring in for unique items or items of significant value.

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About the Author

Cynthia Gaffney has spent over 20 years in finance with experience in valuation, corporate financial planning, mergers & acquisitions consulting and small business ownership. She has worked as a financial writer and editor for several online finance and small business publications since 2011, including AZCentral.com's Small Business section, The Balance.com, Chron.com's Small Business section, and LegalBeagle.com. A Southern California native, Cynthia received her Bachelor of Science degree in finance and business economics from USC.

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