The pawn business is an extremely tough, hands-on business. You are loaning money, often on jewelry, to people that often are only seeking out your services as a last resort. You have a multitude of laws you have to deal with. Politicians may accuse you of taking advantage of people, while your clients may try to get a loan from you on goods that are fake or stolen. You have all the issues of a retail store like hiring and firing employees, being open long hours, and having to deal directly with consumers. For many pawn brokers, the business is tough and there is a lot of competition.
However, the general negative opinion of the government and the general public towards the pawn business does have one redeeming quality for business owners. Government restrictions like limits on the number of licenses issued based on city population or overly strict zoning regulations are barriers to entry that benefit those that already have a license.
Examples of Government Restrictions on Pawn Shops
In Henderson, Nevada, pawn licenses are limited to one for every 50,000 people. Las Vegas has a similar restriction. Rick Harrison of Gold & Silver Pawn recalls that when they first received their pawn license, they checked the population of Las Vegas every day, and filed their application right after it crossed the threshold for another license to be issued. Even then they had to litigate after the city attempted to change the rules after the fact.
In some jurisdictions in Texas, pawn shops have to apply for a special use permit. Any pawn license holder in the jurisdiction can protest the issuance of a new license. They always do and they usually are successful in blocking the special use permit from ever being issued.
Can you Invest in a Pawn License without Running a Pawn Shop?
In the example of Henderson, you must be actively participating in the pawn business to keep your license. If you stop, you lose the license after 90 days. There are a couple of ways you could invest in a pawn license without actively being involved yourself in the pawn business.
You could simply hire experienced managers to run the business. Let’s say that you were able to buy a pawn license in a bankruptcy for a great price. The business doesn’t need to be running great, just running. You could severely limit the amount of money you would loan against anything and control your expenses. Once you identified a buyer that would pay market value for your pawn license, you could sell it and move on.
Another thing you could do is loan money to a pawn business operator with the pawn license as collateral. If the pawn license is almost impossible to get, the pawn broker simply will not walk away unless they truly have no choice. Banks may not lend on it like they would on, say, real estate, but it might even be a safer loan in some cases.