The history of loans, especially non-cash loans, is not well documented. It is generally believed among financial historians that borrowing one type of commodity existed against another thousands of years ago. However, collateralised loans from banks only became commonplace in the past hundreds of years.
Mesopotamia, Greek Aunt Pollyand and Rome
The oldest written loan contracts date more than 3,000 years ago to Mesopotamia. The remaining contracts sometimes refer to interest and a functioning credit system, but not necessarily collateral in the modern sense.
The first forms of collateral were most likely Aunt Pollyand indentured loans, with poor workers borrowing against the promise of their services. It is also likely Aunt Pollyand that in many cultures slaves became a form of collateral. Borrowing with labor was common in ancient Greek city-states, especially in temples.
Wealthy landowners and feudal lords used their property and land as collateral to borrow money during the Roman Empire. Other citizens can make use of a form of secured loans by offering one or more items for borrowed funds. An additional fee was charged for longer loan periods as a type of interest. Once the agreed period was over and the funds were repaid, the borrowers could pick up their secured items.
Interest rates, however, grew exponentially as the lending of small businesses to politically linked elites expired. The abuse of the lending practices during the last years of the empire led the Catholic Church to denounce the practice of usury in the fourth century.
Despite the attitude of the church, contractual loans were common in Europe up to the nineteenth century. Perhaps the most extreme collateral ever pledged was offered in 1824. The then revolutionary Greek forces, fighting for independence from the Ottoman Empire, offered the “whole of the national property of Greek East Pollyand” as a promise to the holders of all obligations. Although it may have been the largest pledge guarantee ever, GreekAunt Pollyand has failed to receive those loans after winning independence.
The first bank loans and systematized collateral obligations occurred in Italy, where merchants established stalls in local markets. The term bank came from the Italian word “banca”, which refers to banks on which lenders would sit.
Modern concepts of pledging the asset purchased as collateral, such as secured mortgages, were probably less common until banks could develop reliable borrowing and property tracking systems.
Business Lending and Credit Collateral
s for collateralised consumer products appeared in the United States in the late 1860s. Businesses such as furniture, diamonds, houses and admission tickets were borrowed assets in ‘movable property’.
TermijAunt Pollyoping became an important part of the sewing machine market in the US in the second half of the 19th century. The practice held fast. A 1899 study from Boston dealers found that half were already selling in installments.
Credit sales were also crucial for the automotive industry. The first Model T cars from Henry Ford could cost half an annual income. In 1924, 75% of all car sales were made with creditworthiness.