Pawn shops are not very common in South Africa besides the ones that are already popular like cash crusader. The success of shops like cash crusaders show that there is a very big market for pawn shops in South Africa.
Pawn shops give out loans to people who don’t use other sources of credit, they usually require something of value as leverage. This protects the pawn shop against losses just in case the debtor decides not to pay back. In this case, the pawn shop can just sell said items of value in order to recoup their money.
These items can literally be anything, but the common items are jewellery, furniture and electronics. Operations are not only limited to lending money to people, some people just want to sell their staff for quick cash. Pawn shops enable this as well by buying second hand items at a low value, adding a markup and reselling them.
The barriers to entry can be a bit steep if you are from South Africa, you need at least R100 000 to start and run a pawn shop. You also need some money that will be used specifically for lending, here are some of the few things you should get right.
Choose the right location
A pawn shop needs to be in the right location in order to maximize its revenue, it’s probably not a great idea to set up a pawn shop in a village/township or small town. Your biggest monthly expense will be rent, you need to make sure that you are at least in a very good location.
It’s often best to be in a bigger town or city but not directly in the CBD. Rent in the CBD can be very expensive, you want your pawn shop to be a little out of the CBD but in a place that gets a lot of foot traffic. Foot traffic is a very huge source of business for pawn shops.
Register your business
There is a lot of regulation surrounding pawn shops, you have to first register your business as a private company. Then register for a pawn shop license and make sure that you are complying with the zoning laws. The purpose of the pawn shop license is to regulate the sale of second-hand inventory and lending rates.
Buy second hand inventory
No one will be attracted to an empty shop, buy some inventory to fill up the space in your pawn shop. You can get most of this in auctions, go to auctions and buy things like jewellery and other things of value. The main purpose of this is to fill up the space in your shop, not to really resell.
It’s important to buy things that will decorate your pawn shop and bring it to life. This goes hand in hand with buying your equipment. Common equipment includes a point of sales system, an accounting system and things like computers and a payroll system.
Make sure you have enough money
A pawn shop is primarily a loan business, you have to have money before lending it to people. This can be a lot; you have to have at least R50 000 in cash and is waiting to be loaned out. You can also work out how much interest you are going to charge. Let’s say you charge a 15% interest, you will earn an interest of R7 500, assuming that all this money is loaned out.
Even with a 30% interest, you will only make around R15 000, you still need to pay rent and employees. The more money you start with, the better, try to have as much saved up as possible.
Market your pawn shop
A pawn shop that is situated in an area with a lot of foot traffic will automatically market itself. Make sure you are in an area that has a lot of foot traffic and you might not need to spend a cent on marketing. Other marketing channels include advertising your pawn shop on the local newspapers.
When marketing to the general public, your focus should be on marketing the valuables that are in your shop. Don’t market your loan services, most people know that pawn shops offer loan services as well.
This was a guide on how to start a pawn shop in South Africa. Do you have any thoughts or questions? Comment below.