From barter to million-dollar deals

The equipment leasing and finance industry, valued at $1 trillion, is a cornerstone of global commerce, empowering businesses, nonprofits, and government organizations to invest in essential equipment.

Nearly 80% of U.S. companies use some form of financing when purchasing equipment, whether through a loan, lease, or line of credit. In 2021, an estimated $2 trillion was invested in equipment and software, with around $1.16 trillion of that financed through loans, leases, and lines of credit.[1]

With the industry’s global impact on modern technology and business advancement, it may be surprising to learn that equipment leasing and finance is one of the oldest professions, dating back to ancient civilizations thousands of years ago.

Ancient Origins in Barter Systems:

The concept of equipment finance began thousands of years ago in early cultures, where barter systems dominated commerce. About 4,000 years ago, Sumerians etched leases into clay tablets for agricultural tools, land and water rights, and oxen and other animals.[2]

In 1700 B.C., the Babylonians created their leasing laws, the Code of Hammurabi, and many ancient civilizations used leasing tools like the Greeks, Romans, Egyptians, and Phoenicians. The Phoenicians even developed ship charters to obtain the use of a crews and ships.[3]

Trade and Leasing in the Middle Ages:

The Middle Ages saw significant advancements in trade and commerce, facilitated by the growth of merchant guilds and the establishment of trade routes. During this period, leasing of agriculture, industrial, and military equipment was widespread.

In 1066 A.D., the Norwegians and Normans sent two invasion fleets to England that were leased by the country to gain the ships and crew. About 300 years later, laws were written, like the Statue of Wales in 1284 A.D., to regulate the leasing of personal property. This law was clarified by a statute in 1571 A.D. that defined who actually owned the leased equipment.[4]

The Industrial Revolution and Railroad Funds:

The Industrial Revolution in the 18th and 19th centuries marked a turning point for equipment finance. The era’s technological innovations, like steam engines, textile machinery, and railway systems, required significant capital investment. In the 1700s, the growing needs of the railroad industry spurred the expansion of the equipment leasing and finance sector in the U.S. Many railroad companies could only afford to lay the track, which led them to find financing for the locomotive and railcars from private entrepreneurs.[5]

This demand led to the creation of equipment trusts administered by banks or trust companies that provided funds to railroad companies through equipment trust certificates. These certificates defined the holder’s right to receive payment on the principal and interest of their invested funds and often outlined the transfer of ownership of the equipment to the company at the end of the term. The Philadelphia Plan was the most well-known railroad finance plan that was the precursor to today’s conditional sales contracts, equipment finance agreements, and money-over-money leases.[6]

Expansion and Regulation in the 20th Century:

The 20th Century saw significant expansion and diversification in the equipment finance industry. Many independent leasing companies formed in the early 1900s, and we began to see the creation of many products that are still used today.

Many equipment finance entities recognized that railroad companies and other customers weren’t interested in long-term control or eventual ownership of their assets. This led to the beginning of true leases and operating leases. Vendor leasing programs were also created during this time as manufacturers turned to independent finance companies to set up vendor finance programs for their equipment.[7]

This era was also the beginning of major government regulations aimed at stimulating the economy in the early 1950s. Many tax laws affecting the industry were introduced, changed, and taken away over the next 30 years, with a give-and-take by the government to help generate more tax revenue or alternatively to stimulate capital expenditure.

Key Regulatory Developments:

• 1954: Section 167 of the Internal Revenue Code (IRC) gave the owner the ability to accelerate depreciation of their assets to increase the benefits of ownership and encourage spending.
• 1955: Revenue Ruling 55-540 defined a true lease for tax purposes.
• 1962: Investment Tax Credit (ITC) provided purchasers with a tax credit to offset their total tax liability. It was eliminated in 1986 with the Tax Reform Act.
• 1972: Asset Depreciation Ranges created hundreds of asset categories and determined useful lives for depreciating assets.
• 1981-1984: A series of tax-related acts, including the Economic Recover Act, the Tax Equity and Fiscal Responsibility Act, and the Deficit Reduction Act, significantly impacted lease tax treatment.

The Beginning of United Leasing & Finance’s 60-Year Journey:

During this period, United Leasing & Finance was founded with the opening of Bob’s Motor Sales in 1964 and United Automobile Leasing, Inc. in 1965. Initially focused on automobile leasing, our company expanded through the 1970s as customers wanted to finance more than just their fleets. We began financing manufacturing equipment, technology, office systems, and other business assets.

Today, we continue to serve the car rental and transportation industries but have grown to provide financing to companies across the country in sectors like fitness, manufacturing, construction, data and technology, and hospitality.

Innovation in the Digital Age of Equipment Finance:

The 21st Century has brought unprecedented changes to the equipment finance industry, driven by digital transformation and globalization. The integration of technology into financial services has made equipment financing more efficient, transparent, and accessible.

With continuous technological advancements and the accelerating obsolescence of equipment, leasing and financing remain smart and essential tools for business owners. Today, companies of all sizes can access financing options, bypassing traditional banking channels, that are customized to their specific equipment needs.

Advanced data analytics and artificial intelligence are also being used to assess credit risk more accurately and streamline approval processes. These emerging technologies will continue to allow lenders to offer more personalized financing solutions while improving the customer experience.

Looking to the Future:

The equipment leasing and finance industry has come a long way from its origins around 4,000 years ago. With a history this long, there is no question that the industry has proven to be resilient, and its evolution reflects broader economic, historical, and technological trends through the centuries.

While the industry continues to face ever-changing conditions, like inflation, interest rates, and geopolitical tensions, it has proven that it can and will continue to adapt and even thrive. The equipment leasing and finance industry isn’t going anywhere — it’s here to stay.

About United Leasing & Finance

United Leasing & Finance is a customer-focused and growth-oriented leasing and finance company committed to providing custom financing solutions to businesses across the U.S. and Canada. For 60 years, United has partnered with clients to achieve mutual success from small businesses to Fortune 500 companies.

[1] ELFA: https://www.elfaonline.org/about/industry-overview

[2-7] The Certified Lease & Finance Professionals’ Handbook, 5th Edition, 2016

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As the equipment finance industry evolves, so do the options available to your business. Contact our knowledgeable team today to discover how our custom financing solutions can help you stay ahead of the curve.