How to Start a Scrap Metal Business in 7 Simple Steps

Ever catch yourself eyeing that old refrigerator or the bundle of wires in your garage, thinking, “Why not make a business out of it?

Well, you are not alone, as it’s a thought that crosses many people’s minds. 

And that’s the reason why the global scrap metal business is growing fast.

Here’s a stat to prove it.

The global scrap metal recycling market was valued at $407.02 billion in 2023 and is forecasted to reach $ 68.76 billion by 2032 at a CAGR of 3.8%. 

So, no time is better than now if you are considering venturing into the scrap metal industry. 

However, you may be wondering how to start a scrap metal business and seeking answers like this Reddit user: 

“So I really want to own my own scrap yard. I just want some info from you about stuff I need to consider, types of permits I’ll need, all the hidden BS, etc. Imagine it as a yard not screwing you over!!”

Don’t worry, as we are here to help you out with this comprehensive guide. 

Let’s start.

7 Steps to Start a Scrap Metal Business

1. Learn the trade yourself and research your industry

The first step is the in-depth learning and research of the industry you want to venture into.  

In this case, your business will depend largely on sorting the right scrap metals for sale. So, you must be aware of what your scrap generally comprises and sort it efficiently. 

Here are a few pointers that might help: 

• Iron and steel are super common scrap metals – strong, magnetic, and usually gray unless they’ve rusted red.
• Aluminum is another everyday metal. It’s lightweight, non-magnetic, and easy to spot in a soda can, appliance, or window frames.
• Copper stands out with its reddish hue, heavier than iron, and you often find it in electric wires or cookware.
• Bronze looks a bit like gold. It’s made from copper but isn’t worth quite as much.
• Lead is really dense and soft, used in bullets or shielding, but toxic, so handle it carefully.
• Some scrap metals are more valuable than others. For instance, iron and aluminium are usually low-value, while copper, brass, and nickel are high-value.
• Scrap metal prices keep varying based on the fluctuations in demand and supply, seasonality, and metal type and grade. 

Next comes the strategies to find your target markets, metals, and deciding on their buying and reselling prices. 

Below are some handy tips:

• If your intended target area is already cluttered with many salvagers, you should ideally avoid starting your business there. Instead, consider some other less saturated area zoned for industrial or service development to see faster and better growth. 
• Find out the industries present in your target area and which scrap metals they demand. It will help decide on the ideal metals you can deal in. For instance, construction companies generally seek steel in bulk. Similarly, the telecommunications industry needs copper to support its infrastructure.
• Search for “commodity trading prices” online to get an idea of scrap metal prices. 
• Analyze your local competitors to learn about the current buying and reselling prices of your target scrap metals.
• Consider offering a fixed rate when buying scrap, and negotiate with buyers to pay prices at par with market rates when selling.

2. Estimate startup costs and explore funding options

Create a list of upfront expenses you’ll have to take care of. It will help you understand whether you have the required budget or need funding. 

Here are the most common areas where you need to spend:

• A place where you sort, disassemble, and store your scrap metal. It could be a small storage unit or a large yard, based on the quantity and types of items you’ll handle.
• Security infrastructure, including fencing, remote video surveillance, biometric authorization, alarm sensors, and security guards.
• Equipment and tools to collect and transport scrap metals
• Workers’ safety tools
• Marketing expenses to promoting your business online and offline

Once you have the idea of the costs involved, it’s time to decide whether you need to raise funds or not. 

In case you can’t self-finance your business, you can explore different options to cover startup costs, such as:

• Public banks or SBA-backed loans
• Private investors
• Organizations that fund small businesses

Tip: Include details, such as goals, business vision, team overview, marketing plan, and projected ROI, to attract potential investors and sponsors towards your business plan.

Once you launch your business, there are ongoing expenses to account for, such as:

• Fuel and vehicle/equipment maintenance costs
• Payroll, taxes, and insurance premiums

3. Register your business as a legal entity and get relevant licenses and permits 

Once your financial plan is ready, it’s time to give your business a legal entity. 

The following are the most common types of business structures: 

• Sole proprietorship: When you own and operate your business single-handedly, you are the sole proprietor. Legally, you and your business are not separate entities. It is easy to set up, but comes with unlimited personal liability. 
• Limited liability partnership: When you have one or more partners with limited liability, it’s a limited liability partnership. It safeguards your business against debts and liabilities, unless they don’t arise from self-negligence or misconduct. 
• Corporation: There are two types: S-Corp and C-Corp. 

An S-Corp passes a business’s profits and losses directly to shareholders’ personal income taxes. 

Contrarily, a C-Corp considers your business a separate entity and taxes both the income and profits that co-owners distribute. If you want to avoid double taxation, go for an S-Corp.

Once your business structure is final, it’s time to register your business and give it a name. 

Next, open a business account. It will help in two ways: 

• One, your personal and business expenses will stay separate.
• Two, you can build a good credit history, useful for loans and lines of credit.

Then comes licensing and permits, a crucial aspect for a scrap metal recycling business. 

Here are a few important ones you must obtain:

• Scrap metal detector/processor license: You need it to buy, sell, process, or recycle scrap metal of any type. 

Based on the state you operate from, the issuing authority can vary. 

For instance, 

• The Department of Consumer and Worker Protection (DCWP) in New York
• The Department of Licensing in Washington
• The Department of Commerce and Insurance in Tennessee

• Business registration/general business license: You need it to operate legally in your city or state. If you need the state-level license, you can get it from your State Secretary or the Department of Revenue in some cases. For a city or county-specific license, you can contact your respective county office.  
• Sales tax permit: You need it to collect and remit sales tax on taxable transactions. The State Department of Revenue issues it.
• Environmental permits: You need these to comply with environmental regulations, like those related to waste management, stormwater discharge, and hazardous material handling. The Federal Environmental Protection Agency is the issuing authority. 
• Vehicle and transportation permits: You require special business license plates and permits for the vehicles you use to haul scrap.
• Recordkeeping and identification requirements: Some states require you to register your identity and keep detailed logs, such as Mississippi.

Note: The above list has enlisted permits and licenses, but is tentative. Therefore, it’s good to consult an attorney to know any additional licensing requirements you must fulfill.

4. Get the right insurance

Insurances safeguard your business assets and employees against legal issues and financial liabilities. 

Below is the list of common insurance types:

• General liability insurance: Protects your business against claims of bodily injury or property damage caused by on-premise accidents.
• Commercial auto insurance: If you have vehicles to transport scrap metal, this insurance covers it.
• Workers’ compensation insurance: If you have employees, it covers medical expenses and compensation in case of prolonged absence due to work-related injuries.
• Property insurance: Covers your scrap yard, equipment, and inventory against theft and vandalism. 
• Pollution liability insurance: Covers costs to pay regulatory fines in case there’s an accident that causes a contamination incident.
• Local zoning permits in case you open a public scrap yard.

Note: You may not need all these coverages right from the start. For instance, you don’t need workers’ compensation insurance if you work as a solopreneur. So, consider consulting an insurance expert who knows the scrap metal industry well. It will help you determine the ones you need and can skip for now to save money.

5. Invest in the right vehicle and tools

You have your plan, budget, licenses, and insurances in place. It’s time to buy the vehicles and tools. 

Ensure to pick industry-grade equipment no matter what. 

It’s because they may be expensive but save you from those heavy repair costs for subpar tools.

Here’s a list of things you’ll need:

• Vehicle (s) to collect and transport scrap, like trucks or vans
• Storage facilities, including bins to store scrap 
• Grinder or pickup trailer truck/van 
• Basic tools, such as wrenches, screwdrivers, and drills
• Cutting tools, such as a metal saw, reciprocating saw, forklift, and blow torch
• Crane magnets to separate ferrous from non-ferrous metals
• Personal protective gear, such as hard hats, thick spill-resistant gloves and boots, respirators in case of scraping hazardous particulates, and welding goggles
• Hook truck and a cable stripper (if you can afford them!)

A strong, rare-earth magnet and accurate scales are non-negotiable,” notes one Reddit user who’s run a yard for years. He also insists on buying good-quality personal protective equipment to protect yourself against injuries.

If you have budget constraints, you can consider leasing or renting some high-end and expensive tools. However, verify they are in optimal working condition so you don’t end up paying more than you could save. 

There’s another aspect you can’t afford to ignore, and that’s ensuring every pickup route is the most efficient, cost-effective, and productive. 

For that, you need advanced route planning and optimization software. 

Our software Upper provides advanced route optimization algorithms to optimize routes and adjust them in real time, based on factors such as:

• Customer’s availability
• Drivers’ working shifts
• Vehicle capacity specifics

Upper’s drag-and-drop interface helps you rearrange the sequence of stops and assign certain stops to another driver based on real-time changes, such as: 

• Emergency or accident
• Vehicle breakdown
• The driver calling in sick 
• Last-minute cancellation of a scheduled pickup
• Traffic congestion

This functionality helps you avoid significant disruptions to your drivers’ progress. 

Besides, Upper provides:

• Excel/CSV spreadsheet import to upload multiple addresses in one go, while preventing manual errors
• Route planning and dispatch scheduling for pickup and collection jobs weeks ahead of time to avoid last-minute chaos. 
• Capacity optimization to distribute routes among drivers based on their vehicles’ load specifications, so each of them is utilized optimally
• GPS-based tracking to monitor drivers’ movements to determine route progress and act proactively if needed.
• Mobile app for drivers to view their assigned routes, schedule updates, and get turn-by-turn navigation directions. 
• Customer notifications to inform sellers and buyers on accurate ETAs so they can stay prepared and available.
• Proof of job completion to collect photos of scrap sold and bought, and capture sellers’ and buyers’ e-signatures for future records.

To see Upper in action and how it can simplify your routing operations, sign up for the 7 days free trial now, no CC required!

6. Launch your business operations 

Once you are all set, it’s time to execute on-ground operations. You can start solo if you deal in small-sized scrap like wires or electronics. 

However, it won’t harm to have at least one employee or partner who can assist you, especially if you deal in heavy scrap in bulk.  

Look for sources where you can get scrap metal. 

For instance, you can consider:

• Residential customers who want to sell out their discarded refrigerators or air conditioners
• Customers who want to sell their used and discarded cars
• Companies in industries like construction, plumbing, or welding that generate scrap

You’ve bought scrap, but you need to resell it too. It’s where you need to find buyers.

Various companies across industries, such as telecommunications, automobile, power, and railways, may be looking for scrap metal in bulk quantities. So, look for such businesses in your local area. 

If you open a scrap yard to the public, individual customers can browse and purchase a specific discarded item or metal they want. 

In case you provide hauling services, you should also ensure you minimize your distances to save fuel and maximize your efficiency. 

💡 Smart route planning solutions like Upper can help you create the most optimal sequence of stops to minimize driving time, fuel, and maintenance costs. Take a free demo to learn how. 

7. Advertise your scrap metal business

No matter how well you set up and run your business, you need customers to keep it afloat. It’s where a well-planned marketing strategy comes in.

Let’s see what all you can do to make one:

• Launch your online business site and register your business on Google My Business, Yelp, and other local directories.
• If your budget allows, run paid advertisements so more people know about your business in a short span.
• Highlight your USP, and emphasize how your scrap metal business contributes to the environment.
• Collaborate with your local businesses or waste management companies to help you expand your operations fast. When you secure B2B contracts, they help ensure a steadier scrap supply. 
• Consider going beyond scrap collection to include recycling services. While you need more workers, tools, and machinery, it’s worth considering, as you’ll have more eco-conscious customers looking to buy recycled items. Promote these services well.
• Attend trade shows and seminar events to build connections and attract potential clients.