Oil man J. Paul Getty, the world's first billionaire, coined the phrase "Buy that which appreciates, lease that which depreciates." Today, over 30% of all equipment acquired in the US is acquired under a lease contract. This makes leasing the single largest form of external corporate finance in the country. Over 80% of companies - from small start-ups to the Fortune 500 - lease some or all of their equipment with lease originations totaling almost $300 billion annually.
Ancient Babylonia and Greece
The earliest leases can be traced back as far as 5,000 years. Records establish the existence of a leasing company around 1800 BC in Babylonia. If an officer or soldier did not want to cultivate the land they received in return for service to the monarchy, he leased it to this company, the leasing specialist. The firm made lease payments to the soldier in advance and in turn leased the land to farmers.
Ancient Greece was the first to develop mine leases. Mines of various sizes in Athens belonged to the State and were leased through a single authority to mining companies for 3 to 7 years. Ancient Greece also pioneered the concept of bank leasing. The first bank lease agreement was signed in 370 BC for assets including the name of the bank, its deposits, offices, and staff.
One of the first laws to refer to leasing in the UK was the Statute of Wales written in 1284. The statute used existing land laws as a legal framework for leasing immovable property like farming equipment. The arrival of the railways in the mid 19th century saw small enterprises investing their capital in coal wagons and in turn leasing them to mining companies. Leasing agreements often gave the lessee the right to purchase the equipment at expiration.
Financial leasing in its contemporary form originated in the US. The first American leasing company was founded by Henry Shofeld in 1952. The company was established to service the railway transportation industry. Europe soon followed with leasing companies of its own in the late 1950s and early 1960s.
Advances in technology created a need for enterprises to renovate their capital assets more often. Leasing enabled businesses to acquire assets on more profitable terms than simply purchasing equipment. The benevolent interest rate environment of the 1950s worked in concert with more favorable tax treatment to drastically increase the number of leases underwritten across the globe.
Asia, South America and Africa did not embrace leasing until the 1970s and 1980s. The states of the former Soviet Union, including Russia, began to develop leasing after the fall of communism in the early 1990s.
Aristotle said that "true wealth lies not in the ownership of property but in the right to use it." A business does not have to own property to make a profit. It is often enough to have the right to use this property over a certain period of time.
We expect leasing to be profitable for all parties involved for centuries to come. The leasing mechanism channels investment into assets that allow businesses to start production quickly and generate sufficient income to cover lease payments. Firms like Cardiff are uniquely positioned to dominate this arena. Meanwhile, traditional banks are left to invest their capital in borrowers whose decisions they cannot easily direct and control.
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