The Success Factors Of Pawn Shops Finance Essay

The pawnshop is where people apply for money loan by giving the pawnshop a pledge. Pledge is any movable thing that can be carried. The most common thing used as a pledge is jewelry, but some of the pawnshops also accept television, camera, video cam and even cell phones.

The word “Pawn” comes from the Latin word “PATINUM” which means cloth or clothing. During early centuries, in Europe, when people borrowed money, the collateral they used was their clothes. Pawn broking was in existence in the ancient Roman and Grecian civilizations. The first formal pawnshop businesses were in China. They originated in Buddhist monasteries, where the interest was usually at 3% or less.

By 1812 AD there were at least 20,000 pawnshops in China. In the 1970’s, Chairman Mao and his Red Army eliminated all the pawnshops along with other private enterprises. Recently pawnshops started making a comeback, filling the gap in their national banking system, lending money to people who earn enough to have bank accounts. Pawnshops were so respected by the Chinese population that they named, Kwan Tai, one of their Gods, the “Patron God of Pawnshops”.

Pawn broking is one of the oldest credit means in the Philippines. Many people believed that the Spanish friars have introduced it when the Philippines was still ruled by the Spaniards.

In order to regulate the operation of pawnshops and all their existing laws, rules and regulations affecting their operations, the joint IMF-CBP Banking Survey Commission on the Philippines Financial System recommended to have a law governing all the pawnshops operating in the country. Presidential Decree No. 114 was promulgated to cover all the aspects on how to establish, and the operation of pawnshops. It also states that the Central Bank of the Philippines was charge with the task and responsibility of regulating the operation of pawnshops.

Background of the Study

Filipinos patronize pawnshops as one of the alternative source of credit and with the increasing numbers of pawners, people should be aware of the pawnbroking transactions, auction sale and some pertinent information that will reduce the risk of pawning and buying of unredeemed articles.

The loan is often a fraction of the price of the original item such as fifty percent. Some of the rules are built to protect the potential pawn shop customer and others are designed to make sure that any goods that are stolen, that might be knowingly purchased by a pawnshop, can be traced back by the seller, and possible thief. Pawnshops and check loan places are worse than yard sales for a variety of reasons.

Pawnshops still offers low market rates for anything that is pawned. People borrow money y putting their things or putting up something they own as collateral, selling used merchandise, and buy new and used merchandise. Pawnbrokers lend money on items of value ranging from gold and silver or diamond jewelry to tools, television, musical instruments, household items and more. These things or items maintain their value over a reasonable period of time and easy to store like jewelries. If you do not pay back with interest on it, they will sell it for double what they gave you.

The researchers choose Mandaluyong City because deemed as the “Shopping Mall Capital of the Philippines” because of its notable number of shopping and entertainment hubs. They have chosen Mandaluyong where Kalentong Street is located. It is a place with a huge number of pawnshops that can satisfy the needs of people in pawnbroking.

Statement of the Problem

This research study will investigate on the success factors of pawnshops at Kalentong , Mandaluyong City. It will also seek to answers the following questions.

What are the strengths of the pawnshops?

What are the weaknesses of the Pawnshops?

What are the opportunities of the Pawnshops?

What are the threats facing when entering in this field of business?

What are the pledge/pawn frequently received?

Is there a significant difference among opinions of the respondents regarding the strengths and weaknesses of Pawnshop when group according to gender?

Hypotheses

Null Hypothesis:

That there is no significant difference among opinions of the respondents regarding the strengths and weaknesses of Pawnshop when grouped according to gender.

Alternative Hypothesis:

That there is a significant difference among opinions of the respondents regarding the strengths and weaknesses of Pawnshop when grouped according to gender.

CONCEPTUAL FRAMEWORK

 Establishing business having good staff is what a pawnshop needed. Having a good marketing plan cannot be achieved without having persons who were capable in handling such position needed in financing business.    

Pawnshop can be classified as a financing firm.  There is a need of having a good relationship between the customer and the staff.  An organization needs to develop a long-term, cost effective link with individual customers. The staff should possess some of the management skills for it’s the key for the firm’s success.  It requires certain skills to carry out the various functions of management and that lead to a desired performance level. The performance achieves through the management is made up of two important dimensions: the effectiveness and the efficiency of the management. Aside from having a low interest for the pawned property, customers want to be treated well.  People who live in and work in the community where a firm is located or doing business are often target of public relations effort.

Building trust and keeping cost near to zero (low interest) was the most important factors in the success of the business.

Management Skills

Technical skills – skills that reflect both an understanding of and a proficiency in a specialized field.  For example, a manager may have technical skills in accounting, finance, and engineering.

Human skills – skills associated with a manager’s ability to work well with others, both as member of the group and as a leader who gets things through others.  Managers with effective human skills are typically adept at communicating with others and motivating them to develop themselves and perform well in pursuit of organizational goals.

 Conceptual skills – skills related to the ability to visualize the organization as a whole, discern interrelationships among organizational part, and understand how the organization fits into the wider context of the industry, community, and world.  Conceptual skills, coupled with technical skills, human skills, and a knowledge base, are important ingredients in organizational performance. 

To have and effective and efficient staff, it takes a combination of education and experience about the field or area’s it`s going to operate or manage.  According to several informal surveys, managerial work in the future is particularly likely to be affected by an increasing need to manage change and innovation, the growing diversity of the work force, the burgeoning globalization of business, and the expanding concern with issues of quality and continuous improvement.

The Research Paradigm

The illustration below contains the following boxes: input, process, and output which represent the researcher’s perception on the research’s framework. The input box contains owner’s contributions which are their management and marketing strategies. General reasons why the customers patronize pawnshops are also featured on the input box.

Process discloses the SWOT analysis (Strength, Weakness, Opportunities, and Threats) of pawn shop business. Each item lists 5 items. Output, as the word actually means, is the end-product which resulted from the input and output. It provides the positive results which can be acquired through extensive and intensive considerations or careful analysis of the business

Process

SWOT analysis of Pawnshop Business

Strengths

Accessible location

Low interest rate

Process is fast and reliable

Longer maturity period compared to others

Highest degree of appraisal

Weaknesses

The law limits the interest rate

Some do not have jewelries or any item to pawn

Many people can’t pay their debts

Equipments that are not calibrated

If not incorporated, you assume all the liabilities of the business

Opportunities

Affiliations or establishment of significant influence over other pawn shops (Incorporation)

Business extension (money order, etc.)

Acquisition of collateral costs cheaply

Branching of business

Acquired collateral can be bargained

Threats

Abundance of independent pawn brokers

Prone to Robbery

Fraud among employees

Fast rate of depreciation of items pawned

Widespread availability of credit cards which can provide loans without pawning any item

Output

A successful pawn shop business:

Accessible location- conspicuous or located in a commercial place

Low interest rate- borrowing of money costs cheap compared to other pawn shop

Process is fast and reliable- transactions are done feasibly

Longer maturity of period compared to others- extended due date

Highest degree of appraisal- more cash for customer

Input

Owner’s contribution:

1. Marketing strategies

Low interest rate

Long maturity date

2. Management strategies

Skilled pawn brokers

Knowledgeable managers

Consumer’s reason why they patronize pawn shop:

For immediate cash

To accumulate funds

To sell jewelries or convert non-cash asset into cash

The Research Paradigm

Significance of the Study

The research paper would be a great help for those who wants to put up a small enterprise such as pawnshops, for those who seek for the services of pawnshops, and for pawnshop owners.

For pawnshop owners:

The research paper is significant to be able to understand well the demand and supply analysis for each month of the year, the different interest rates that pawnshops apply and the marketing efforts they utilize.

The demand and supply analysis will help them consider the shifting of consumer demand and to be able to help owners to be ready for it. If supply and demand is the reason for jewelry’s appraisal, there must be a change in supply, demand, or something that affects the supply/demand curves in order for the price to change.

The different interest rates applied will help them determine the efficiency of each rate and what loaners want. This would help them meet the demands of their customers and increase their sales.

For entrepreneurs:

The research study can help entrepreneurs who wanted to open up their own pawnshops can know the regulations that they could fall under based on your choice of location will have a major impact on how you choose to do your business. Maximum finance charges, minimum holding times, unredeemed pledge disposal, and many other important business metrics are regulated by these statutes and need to be complied with. These limitations sometimes vary from city to city.

It is important to understand these limitations before investing in your pawnshop business is of great importance to entrepreneurs. Many additional products and services to generate additional revenue streams would be required for such an operation to actually run profitably.

In most areas there are strict requirements on forms to be used when conducting business in a pawnshop. The strictest requirement is in the content necessary on the pawn loan document, or pawn ticket.

For loaners:

It is important for loaners to know the different legal interest rates that a pawnshop can offer. This way, they won’t be deceived and would understand the different advantages and fire back of loaning through pawnshops.

Overall, the research study is important to be able to help people that relates or is involve with pawnshops. It can help through the eradication of ignorance that concerns to the subject matter being discussed.

Scope and Limitations of the Study

This study will focus on the success factors of pawnshops located in Kalentong.Mandaluyong. It will involve 7 pawnshops namely: Papa`s Pawnshop, Villarica Pawnshop, G. Ochoa Realica Pawnshop, All Women Pawnshop, Palawan Pawnshop, M.G. Bismonte Pawnshop and Cebuana Lhuillier. The respondents of the study will be 7owners, —employes, —-costumers. This study will cover the period from June to October 2010.

DEFINITION OF TERMS

Amortization- the gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time.

– Writing off an intangible asset investment over the projected life of the assets.

Appraisal – the practice of determining the value of property.

Appraiser – a practitioner who has the knowledge and expertise necessary to estimate the value of an asset, or the likelihood of an event occurring, and the cost of such an occurrence. Ideally, an appraiser acts independently of the buying and selling parties in a transaction in order to arrive at the fair value of an asset without bias.

Auction -a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder.

Bid- price – is the highest price that a buyer is willing to pay for a good.

Broker loan rate- interest rate at which brokers borrow from banks to cover the securities positions of their clients. The broker loan rate usually hovers a percentage point or so above such short-term interest rates as the federal funds rate and the treasury bill rate.

Business license- a legal document that grants you the right to operate a business in your city. Depending on your business, there are other licenses that may also be required.

Business loan – a bank loan granted for the use of a business

Business plan – is a formal statement of a set of business goals, the reasons why they are believed attainable, and the    plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

Cash flow-a measure of a company’s financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.

Camera- is a device that records images, either as a still photograph or as moving images known as videos or movies.

Cellphone- A mobile time allowed for repayment, discount for cash or early payment, and the amount or rate of late payment penalty. Wireless telephone that communicates with a local transmitter using a short-wave analog or digital transmission.

Collateral- is a borrower’s pledge of specific property to a lender, to secure repayment of a loan.

Collateral agreement- continuous agreement under which a securities broker-dealer borrows from a bank against listed securities to buy or carry inventory, finance the underwriting of new issues, or carry the margin accounts of clients. Synonymous with broker’s loan.

Credit- refers to money loaned or the ability of an individual or company to borrow money. Credit is also used to mean positive cash entries in a bank account. For instance, an account may be credited with interest. Credit is the opposite of debit.

Credit term – Standard or negotiated terms (offered by a seller to a buyer) that control the monthly and total credit amount, maximum

Diamond – is an allotrope of carbon, where the carbon atoms are arranged in a variation of the face-centered cubic crystal structure called a diamond lattice. Diamond is renowned as a material with superlative physical qualities, most of which originate from the strong covalent bonding between its atoms.

Discount Retail – is an opportunity for customer to make their dollars go further .It helps other merchants and community by giving them more discretionary funds.

Financial planning- is a systematic approach whereby the financial planner helps the customer to maximize his existing financial resources by utilizing financial tools to achieve his financial goals.

Financial planning also define as the process of meeting your life goals through proper management of your finances.

Fine jewelry may be defined as jewelry made out of precious metals such as gold or silver and set with precious or semi-precious stones.

Foreclosure the process by which mortgaged property enters into the possession of the mortgagee without right of redemption by the mortgagor, usually for reason of delinquency in mortgage payments.

Foreclosure procedure a customer defaults by not repaying the loan, the collateral becomes the property of the pawnshop after the loan is overdue by a specific amount of time, generally one to three months.

Gadget is a small technological object (such as a device or an appliance) that has a particular function, but is often thought of as a novelty.

Gold is a chemical element with the symbol Au and an atomic number of 79. It has been a highly sought-after precious metal for coinage, jewelry

Identity document (also called a piece of identification or ID) is any document which may be used to verify aspects of a person’s personal identity.

Standard-sized card, it is usually called an identity card (IC).

Interest -the cost of borrowing money, usually expressed as a percentage per year.

Interest rate -the price a borrower pays for the use of money they borrow from a lender, for instance a small company might borrow capital from a bank to buy new assets for their business, and the return a lender receives for deferring the use of funds, by lending it to the borrower.

Jewelry signifies items of personal adornment, such as necklaces, rings, brooches, earrings and bracelets. Jewelry may be made from any material, such as gemstones, precious metals or shells, besides other materials, depending on cultural differences and availability of materials

Lending- disposing of money or property with the expectation that the same thing (or an equivalent) will be returned.

Loan- An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time.

Loan covenant- is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met.

Margin account- brokerage account allowing customers to buy securities with money borrowed from the broker.

Marketing Startegy-written plan (usually a part of the overall corporate plan) which combines product development, promotion, distribution, and pricing approach, identifies the firm’s marketing goals, and explains how they will be achieved within a stated timeframe. Marketing strategy determines the choice of target market segment, positioning, marketing mix, and allocation of resources.

 Money- is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.[1][2] The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment,

Patinum- latin word which means cloth or clothing.

Pawn -the condition of being held as a pledge against the payment of a loan: jewels in pawn.

Pawnable Items- Almost any item that has monetary value can be pawned. This includes articles of clothing, jewelry, household goods, house wares, motorized vehicles and tools.

Pawnbroker – Any person engaged in the business of lending money on the security of pledged goods and who may also purchase merchandise for resale from dealers and traders. A pawnbroker makes loans on personal property left as collateral. The property can be redeemed when the loan plus interest is repaid.

Pawnbroking is a noble profession dating back thousands of years, yet because of its nature is often misunderstood by entrepreneurs who wish to enter the industry

Pawning-you bring in something you own and give it to the pawnbroker as collateral for a loan.

Pawnshop – the location at which, or premises in which, a pawnbroker regularly conducts business. This is a neighborhood business providing vital services to the community.

Pawn or Pawn transaction – A written bailment of personal property as security for a debt, redeemable on certain terms within 180 days, unless renewed, and with an implied power of sale on default

Pawn off- to dispose or get rid of deceptively.

Pawn ticket- receipt for goods pawned.

Pawn/Collateral – a borrower’s pledge of specific property to a lender, to secure repayment of a loan.

Pledge – An item to be sold to a pawnbroker.

Profit the positive gain from an investment or business operation after subtracting for all expenses. opposite of loss.

Redeem- To recover ownership of by paying a specified sum.

Short-term – relating to or extending over a limited period; “short-run planning”; “a short-term lease”; “short-term credit”

Silver- a soft white precious univalent metallic element having the highest electrical and thermal conductivity of any metal; occurs in argentite and in free form; used in coins and jewelry and tableware and photography

Television (TV)- is a widely used telecommunication medium for transmitting and receiving moving images, either monochromatic (“black and white”) or color, usually accompanied by sound.

Valuation – the determination of the economic value of an asset or liability.

Wholesale- value of used good, in the case that pawnshop is unable to sell it and they decide to sell it to a wholesale merchant of used good.