The first business loans possibly date back to ancient Greece. One of the most important services offered by Greek bankers was the lending of money to finance the transportation of goods by ship. They also lent money for mining and the construction of public buildings. Later, during the Middle Ages, Jews fled for their lives to Italy, where they encountered farmers looking for money to help support their businesses. The Christians, who were the current inhabitants of Italy, were prohibited from the sin of usury, that is, charging a canon for the use of money. Today, the word usury is used to describe placing unreasonable interest rates on borrowed money. Therefore, this opened the door for the newcomers, the Jews (who were merchants), to lend money to the farmers. The term “merchant bank” derives from this origin and was one of the first banks to offer “commercial” loans to the grain farmer. Merchants remained the main source of financing for trade and commercial loans well into the 18th century.
In 1781, the first commercial bank was chartered in North America. They gave short-term credit to American merchants, who then extended it to wholesalers of their imports, and the wholesalers passed it on to urban retailers, country stores, and street vendors. By 1789, the nation had three commercial banks.
One of the most famous men noted for lending the “little man” money to do business is AP Giannini. Historians have referred to him as “America’s Banker.” Until that time, most banks only lent money to the rich. In 1904, Giannini opened the Bank of Italy in San Francisco. Hard-working immigrants looking to open businesses and buy homes finally had a chance to borrow money. After the earthquake that destroyed much of the city in 1906, Giannini got back on his feet; giving loans to people to rebuild his lost businesses. By the mid-1920s, he owned the third largest bank in the nation. In 1930, he formed the Bank of America, which weathered the Great Depression, financing large industrial and agricultural interests, as well as building California’s motion picture industry and even lending the city money to build the Golden Gate Bridge.
One of the most important types of business loans available to Americans is backed or guaranteed by the US government. These loans are available to small businesses and ordinary individuals who may not qualify for other business loans. The Investment Company Act of 1958 established the Small Business Investment Company Program. This program allows the government to regulate and provide funding for privately owned and operated venture capital investment companies. These companies then, in turn, make loans to high-risk small businesses. Since 1958, the government through the Small Business Administration has put nearly $30 billion in the hands of entrepreneurs to finance their growth. The SBA is currently working with minorities and women regarding their business enterprises (www.sba.gov).
Throughout history, merchants, bankers, and government agencies have kept entrepreneurs’ dreams alive by allowing them to borrow capital based on an idea, service, or product. These dreams are still alive and well today, and are being realized every day thanks to governments and bankers alike.
