Info about Pawn Shops
The Business Model of Pawn Shops
You might have seen Pawn shops in many places around the cities and towns. These are private lending agencies that will lend you money in return for collateral. The business model for such stores is that you would be given a loan in return for some physical inventory. On a later date once you repay the loan and the interest you can take back your item.
• Origin of Pawn Shops
The pawn shops derive their name from a Latin word pignus which means to pledge. When you go to take a loan, you are basically pledging your product to the pawn broker. There have been instances of pawn broking in the history of mankind in several cultures. A
Ancient Greeks and Romans practised this business. In Asia, Chinese have had pawn brokers for over three millennia. Even in countries like Thailand and India which have a long history, pawn broking has been an integral part of the cultures.
• Business Model
The business model for pawn shops is very simple. They would lend you money against an item which they determine has a good resale value. This model does have detailed steps though which are as follows:
• Items: There are many items that can be pawned. Some of the most popular ones are home electronics and precious metals, stones and jewellery. Of late, though only the latest and cutting edge electronics hold decent value to get a good loan, else it is the precious metals that are very common.
• Item Valuation: Depending on the period of the loan, the current price of the item pledged, the pawn broker uses a reference Blue Books to finalise the value of the item. It is important because the item value has direct bearing on the amount of loan disbursed.
• Loan Amount: This is probably the most important step in pawn broking. The business model profits only from the interest earned on the loan. If people decide to forego the item pawned to avoid the interest, pawn broker would soon be out of business. Hence, the total value of the item, the likelihood of the pledger returning to claim the item, the duration of the loan, interest details, etc determine the loan amount.
• Selling of Items: At a pawn broking shop you are going to see items that are on sale because the pledgers defaulted on the loan. As a pawn shop owner, you really need a relatively well filled store to ensure that customers are attracted to come and visit your shop. Without enough customers, you cannot make a sale and if you do not sell items you cannot recover your money. At the same time, too many inventory on sale means to many people defaulting on loan which is also not good.
These are the four main cogs in the business model for pawn shops. It is a tough business to run and requires a very good sense of judgement of the item as well as person.