Help And Guidance

Anyone thinking of establishing a pawnbroking business will need to satisfy certain criteria in addition to possessing the fundamental ability to run a new business. The essentials, each of which will be addressed in turn below are:

Pawnbrokers must have a licence and Applications should be made to:

Financial Conduct Authority

FCA,
25 The North Colonnade,
Canary Wharf,
London,
E14 5HS

Tel: 0207 066 1000
Web: www.fca.org.uk

To operate pawnbroking using a standard pawnbroking agreement a pawnbroker must conduct business from licensed trade premises and the trading name must agree with the name under which it is licensed to trade.

In general terms this will mean a High Street type premises, although subject to appropriate licensing and retail use this may sometimes be say, a first floor office. The planning use normally required would be either A1 General Retail or A2 Professional and Financial.

If you are uncertain as to use you should check this with the planning department of the local Council in the area that your premises are situated.

It is not possible to specify the exact amount of money that will be needed for making initial loans. However, experience shows that between £50,000 and £100,000 of start-up capital needs to be available to lend to customers in the first year of a new pawnbroking business.

If you do not already have suitable premises from which to operate a pawnbroker's business (giving considerable attention to security) then you will find that shop fitting may cost up to £75,000 and if you intend to retail jewellery items too then you will need to spend on stock for the window (this amount will obviously depend on the size of the display). Jewellers' premises are ideal for pawnbroking and the businesses complement each other perfectly as the security is in place and most pawnbrokers find, for reasons previously stated, lending against gold, jewellery and watches works best.

Since the exact amount of capital needed in each case depends on many factors, you will almost certainly need to give considerable thought to preparing a detailed business plan and cash flow forecast with the help of your accountant and bank manager.

The choice of location and area, along with the level of existing competition and general demand for your services will affect the sums required.

A high degree of skill at valuation is needed to make a sound commercial decision concerning the amount of money to lend each customer. The pawnbroker who does not have that skill can easily make costly mistakes.

If you do not already have the necessary skills these can be learned by enrolling on a jewellery valuation course. Further details about courses may be obtained from:

The National Association of Goldsmiths
78a Luke Street
London
EC2A 4PY

Tel: 020 7613 4445
Fax: 020 7613 4450
E-mail: jet@jewellers-online.org
Website: www.jewellers-online.org

The Consumer Credit Act 1974 is the basis for all forms of consumer lending which includes pawnbroking. A pawnbroker must follow the act and must have a Consumer Credit License issued by the Financial Conduct Authority (FCA). To succeed a Pawnbroker needs to have a business plan and business procedures in place. To apply for a license click here.

The Pawnbroker must continue to comply with the FCA rules in their Consumer Credit Sourcebook(CONC) including section 6.6 which is specific to pawnbroking, and must sign up on the Anti Money Laundering register by clicking here.

Pawnbrokers have a common law duty to take what is described as 'reasonable care' of the property that they take into pawn.

They must take all reasonable measures to ensure that pledges are not lost, damaged or stolen and it follows that their premises need a high standard of security for both customers' goods and, highly importantly, members of staff. Effective security arrangements for pawnbroking premises have become crucial in an environment of rising crime.

The NPA is always available to give guidance in this most important area.

Pawnbrokers have several options to consider when it comes to insurance. Obviously cover for your premises, the loans and interest you have made and for retail stock are a must, so also is occupiers and employers liability insurance.

Pledged goods as far as the customer is concerned are not usually insured by the pawnbroker and there is no legal obligation for you to do so. However many pawnbrokers choose to employ a compensation scheme that gives cover in the event of damage or loss to the goods whilst in their care. Compensation against the damaged goodwill should the business ever suffer a catastrophic loss, means that aggrieved customers are far more likely to return to the business. Preventing the permanent loss of goodwill is imperative and in recognition of this the NPA teamed up with T.H.March to offer a compensation scheme. You can view their website here www.thmarch.co.uk.

The Plan is simple, cost-effective and flexible, providing the customer with compensation of up to three times the value of the loan in the case of permanent loss or damage. The cost may be met indirectly by means of a small increase to the rate of interest payable on the loan. No special terms or surveys are required since the plan runs in conjunction with pawnbrokers' existing insurance arrangements.