4 ms·
5% interest rate does not imply 5% business growth. Interest rate simply reflects the fact that people prefer $1 right now to $1 a year later. In this context b
by pps43 9y ago
5% interest rate does not imply 5% business growth. Interest rate simply reflects the fact that people prefer $1 right now to $1 a year later. In this context banks are time machines, moving money through time (glossing over credit risk, inflation, and other complexities).
- kpil 9y agoThe loan market is basically a consequence of our mortality.. .
- valuearb 9y agoRight, and maybe the best way to describe it is if your business borrows at 5%, it has to earn more than 5% on that borrowed money. It has little to do with growth, and everything to do with profit margin. For example, lets say you want to start a business is investing in bonds. You work for wall street and are great at picking high yield bonds that aren't as risky as they look. You average a 7% return over time, which includes losses on your mistakes. But you have no money to invest to start the business, so you approach a bank and show them your long term results. The bank sees you as a good risk and offers to loan you $10M at 5% a year, so you can gross $700k a year, pay the bank $500k, and net $200k. But if the bank ever raises your rate to 7%, you are then out of business.