Small Business Loans For A Pawn Shop
Owning a pawn shop can be a profitable and rewarding venture. You are helping people out when they need money, fillings community’s financing gaps, and serving those who might not have access to traditional borrowing methods. Utilized by both wealthy individuals who lack liquid assets and those who live paycheck to paycheck, a pawn shop owner can succeed by knowing and meeting their customer’s needs.
If it’s time to grow your business, either by expanding your location, starting to sell online, or opening a new pawnshop, you will need access to capital. At Shield Funding we make it easy to apply online in minutes to get the business funding you need to grow your business. Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
What Do I Need to Qualify?
Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
Types of Business Loans for Pawn Shops
Small business owners of pawn stores know the power of borrowing and lending. Customers come to your store to borrow funds, and you help them meet temporary or long-term needs. But there will be times when you need to access more capital than your business’ sales produce and the lender will become the borrower.
If you need to take out a small business loan, you have several options available. The best loan for your business will meet your business’ needs and support your growth.
Bad Credit Business Loans
Banks and traditional lenders tend to avoid lending to some industries, and pawn shops are one of them. Even if you have an excellent credit score, a bank could deny your small business loan application. A bad credit business loan, offered by alternative lenders, refers to loans that have lesser or different requirements than a bank loan.
To qualify for a bad credit business loan, you must have a credit score above 500. Alternative lenders give more weight to the amount of revenues your business generates when making a lending decision, so they require minimum monthly revenues of $8,000. Banks also rarely lend to companies with less than two years of operations, but alternative lenders will work with after two months of operations.
Shield Funding extends loans in amounts ranging from $5,000 to $1 million, though underwriting will demand more documentation for higher value loans. Due to the higher risk that these loans represent, interest rates will be between 12% to 45%.
Short Term Business Loans
Has a short-term opportunity dropped in your lap? Perhaps a nearby pawn store has gone out of business, and you could acquire their inventory at bargain-basement prices. Or, the storefront next door has opened up, and you want to expand. A short term loan provides you with the capital to fund a short term project.
Shield Funding’s short term business loans are available for 6 to 24 months, perfect for a smaller project with a fixed duration. Your pawnshop must have been in operation for a year and have minimum monthly revenues of $10,000. Interest rates range from 9% to 45%. Loans can be for $15,000 to $1 million, and you must have a credit score above 650.
Another advantage of working with an alternative lender is that you avoid the months it can take to get approved for a bank loan. Underwriters at Shield can turn around a loan approval in as little as 24 hours and disburse funds within 1-2 days. Fast access to money drives the pawn business, and this quick turnaround could be precisely what you need.
Working Capital Loans
Every business goes through cash flow slumps, and a pawn shop is no exception. If it has been a slow quarter and you are struggling to pay rent or payroll, look into a working capital loan. Working capital is the money that you have available to cover your daily expenses. To calculate it, take the current assets from your balance sheet and subtract current liabilities.
Working capital loans help business owners cover their working capital needs. Available in terms of twelve to thirty-six months, you can borrow between $10,000 to $1 million. Borrowers with Shield Funding must have a credit score above 650 and minimum monthly revenues of $10,000 to qualify, but you only need two months in business.
Many pawnshops experience seasonal downturns in late summer. Taking out a working capital loan during this time could keep you afloat until the busier season.
State of the Industry
In 2018, the industry generated $6 billion in revenue. Revenues have slipped 1.0% over the past five years, and industry employment is down. The number of businesses is up, however, rising to 11,800. The falling price of gold has impacted revenues, and an annualized decline of 1.5% over five years did not help the industry’s results.
No truly big players have emerged, as 85% of pawn stores in the United States are independently owned regional chains or small businesses. Approximately 7.4% of American households have used a pawn store, with average loans around $150.
It is a known fact that pawnshops thrive during a recession as individuals sell unwanted items to make ends meet. Some experts believe that business uncertainty and other indicators could point to a recession coming up in 2020. The political climate, including escalating trade wars with China and others, has been worrying economists. Corporate spending on investments has slowed, and central banks are struggling to stimulate growth.
While industry growth has been stagnant, there are signs that it will pick up in the future.
Growth Tips for Pawn Shop Owners
Do you want to grow from a single location to a city or state-wide chain? Are you eager to increase your profits, or expand your customer base? Whatever type of growth you seek, here are some tips to help you achieve your goals.
Market Your Business
To attract new customers, you must let them know that your business exists. Marketing serves the purpose of informing the community of your pawn shop and its services.
Invest in bright and professional signage that is visible from the street or when driving by, hang it in both in your windows and on the building’s exterior. If you are running a special or looking for specific items, have banners printed up to tell people you are buying gold.
Running sales and specials entices people into your store. If you have too many stereos in stock, put them on sale. And let people know on your Facebook page or Twitter feed that they can get a great deal on them. Social media can be a powerful tool for reaching current and existing customers, one that helps increase brand awareness.
Make sure that your business is listed in local directories, in Google searches, and online marketplaces where people might search for your services. Print up business cards and flyers that customers can take with them and hand out to friends. If you have more money to devote to advertising, buy ad spots on local radio and television stations that are popular with your target demographic.
Lastly, use direct email and mail marketing to keep in touch with current and potential customers. Automated customer relationship management software will email reminders to borrowers of when payments are due, reducing your need to follow up with them. Sales emails can let people know about your specials, reduced rates, or solicit items that you want to buy.
When it comes to marketing your pawnshop put some creativity and effort into it, and you will see results.
Learn your Numbers
Owning a pawn shop is not the same as operating a secondhand store. First and foremost, you are a lender who provides borrowers with short-term credit in exchange for personal property that they have pledged. Once you start thinking like a lender, you must start paying attention to your numbers.
How much margin will you make on a flat-screen TV versus a fancy watch? If you lend on 80% of an item’s value, will you be able to recoup that money by selling the item if the seller does not redeem it? For your business to grow, you need to grasp the complexities of the numbers that drive it.
The margin on a loan is the difference between the rate you pay for capital and the rate you charge. If you have borrowed from Shield Funding at 25% interest, and are charging a customer 40%, your net interest margin is 15%. This is one reason the amount of interest you pay matters less than what you make on the loan.
States regulate maximum finance charges, minimum holding times, unredeemed pledge disposal, and other business metrics that will directly impact your business. Failure to comply could cause you to lose your license. When putting together your business plan, and projecting future profits, calculate how finance charges and holding times will impact your business.
Specialize in Inventory
Specializing in a type of item, or group of similar items, allows you to build expertise in pricing those items and a name for yourself in your city. Once you have specialized, you can move things quickly, either in-store or on sites such as eBay. Building word-of-mouth as the “go-to” pawn shop in, for example, TVs or smartphones, means that people wanting to pawn those items will come to you first.
It also means that you can sell those items for higher prices, as buyers will trust that your pricing is fair. If you are trying to compete in a crowded market, look for high-value inventory that other local pawn stores do not carry. That could be your niche.
Go Online to Sell Inventory
Those pawnbrokers who did see growth in their retail sales in 2018 cited going online as the biggest driver of this growth. Consumers are used to shopping online now and have few hesitations about buying secondhand only. A full 75% of pawnbrokers who sell online use eBay to handle merchandise, along with other sites such as Craigslist, Buya, and OfferUp. Only 19% of pawnbrokers do not have an online presence, in contrast to 85% who have a website and use social media for marketing.
The message is clear – if you want to grow your business, you need to sell online. Invest in a professional, high-quality website. Consider selling directly through your site, which will require high resolution and well-lit photography. You can post in multiple marketplaces and on several sites but carefully track sold items to avoid disappointing a customer or selling something twice.
Selling online helps you reach a new audience and expand your sales area beyond your physical location.
Manage Your Reputation
Pay attention to online reviews and respond to them politely and professionally. If someone leaves a negative and untrue review, you can correct their story, but beware of engaging in arguments or becoming defensive.
Encourage customers to leave positive reviews and consider incentivizing them by offering a discount off their next purchase or a slight reduction in interest on a pawned item. Establish a good reputation by being upfront about pricing, interest, repayment terms, and item’s values with your customers.
Managing your reputation also includes following all local laws and regulations about the handling of stolen goods. Cooperate and work with the police if they have questions about something in your inventory. Maintain records of serial numbers and other paperwork that serves as proof-of-ownership. And do not skirt the law when it comes to hold times and registering items with authorities.
Respond Quickly and Often
Pawnshop customers are looking for cash and need it now. If you are making offers on websites such as PawnGuru, respond quickly to listings. Even if the item does not perfectly fit your store or inventory needs, offering on a low-ticket listing could help you acquire a new customer.
When a customer brings an item into your store, be prepared to make an offer on the spot. And any time someone comes in with a too-high price, make an offer and negotiate. It can be helpful to explain the reasons behind your lower offers, whether it is due to regulations, the customer’s lack of understanding of the difference between pawning or selling something, or the documentation you need to accept an item.
Online, you can reach out and make an offer, too. With the use of eBay and listing sites becoming ubiquitous, sellers are accustomed to a negotiation process. Do not neglect Facebook marketplace or Craigslist, either. If you decide to sell online, you should dedicate time to answering questions. You can also use local marketplaces to source potential items you could sell in-store.
High-growth 0rganizations report that they have an average of 16 interactions with prospects within 2-4 weeks before converting them to a customer. Whether the prospect is buying or selling, make it a point to interact with them regularly to convert them to a customer.
Pay Attention to your Store’s Appearance
While selling online can help you grow your business, do not neglect your physical store and in-person business. Even if sales in-store have dipped, much of your inventory to sell online may still come through your physical doors.
Make sure that your store is always clean and inviting. To avoid a seedy atmosphere, replace burnt-out light bulbs, and keep it well-lit. Keep shelves neat and free from dust, and do not crowd too many items in one place. This will also help with theft-prevention.
Pawnshops, like many businesses, rely on regular customers. Move inventory around the store to keep the space new for repeat customers. They may see something that they missed last time.
Pick a Good Location
According to the National Pawnbrokers Association, over 80% of your business will come from an 8-mile radius of your shop. This circle will be wider in more sparsely populated areas and narrower in a dense, urban area. Consider the local population, their income and education levels, and their types of employment when it is time to expand and pick another location.
To ensure a successful expansion, you will want to pick a new store in an area where the population will need your services. There will also need to be enough potential customers to sustain your business in the long-term.
Do not forget about security issues when deciding to rent or buy a new space. Look for a bright, well-lit parking lot in a location with good foot traffic. Count the number of entrances and exits to determine how many security cameras you will need. Abide by zoning laws and other regulations which limit how close you can place a pawn shop to a school or other types of businesses.
Expand your Warehouse Space
Another factor in picking a new location, or expanding an existing store, is the amount of warehouse space available. You will need a place to store pledged items before they can be put on the sales floor. While smaller items such as jewelry can easily be stored, if you decide to accept bicycles, televisions, and large electronics as collateral, you will need more space.
Expanding your warehouse allows you to grow your business because you can accept more merchandise. This means that you can lend more and will probably also grow your inventory available for sale. When you add warehouse space, you may also need to purchase an additional locked display case or safe.
The Final Word on Small Business Loans for Pawn Shops
Just as you seek to become a trusted lender for your customers, so does Shield Funding seek to become your trusted lender. After ten years in the alternative lending industry, Shield knows how to lend to help businesses become successful. They have built a strong reputation and the knowledge base to support your pawn shop’s growth efforts. Reach out to be connected with a lending specialist today.