The First Signature Loans
The transmission in your vehicle is broken. You have some unexpected medical bills that are not covered by your health insurance. Your checking and savings account balances are not enough to cover these unpleasant and untimely expenses. How can you pay for these interruptions in your life? Many people turn to signature loans from banks to pay for bills that they cannot cover with their own financial resources.
A signature loan offered by a bank is an example of a loan that can be given to borrowers who provide only their signatures and their promises to pay as a guarantee of payment. These loans typically have high interest rates because there is no collateral to cover any default on the loan.
The creation of unsecured loans can be traced to the establishment of the Banco Giro in Venice, Italy in the early 1600s. The early Venetian bankers provided a service to merchants and other businessmen to pay for purchases or sales without the exchange of coins. Payments for transactions were made by using credits which were recorded for future business agreements. These credits were issued between the merchants by having a banker enter a written record of the transaction in an official book. The term “banche di scritta”, an Italian phrase meaning “banks of written”,was given to this practice of conducting business in writing with the official presence of a banker.
In the United States, signature loans were given to consumers as early as 1904 by the Bank of Italy. Amadeo Pietro Giannini wanted to establish a bank that would serve the credit needs of immigrants and other less fortunate people. Giannini founded the Bank of Italy in San Francisco, California. The generous loan policies of Bank of Italy allowed poor immigrants to borrow money without collateral. Giannini had compassion for people who were hard workers but who did not have the resources that wealthier people had.
Even though Giannini’s business practices were not considered sound or prudent by his banking competitors, he still believed that granting unsecured loans to hard working customers was a way to strengthen the buying power of ordinary consumers who could not provide a guarantee of payment other than their signature.
Giannini’s risky loan policies changed the banking industry. Struggling businesses who needed someone to believe in their good character and their vision for a profitable business venture now had a banker who would help them when other banks were not willing to take a risk without collateral.