Thursday, 1 August 2013

The problem with banks

The problem with banks lending to small businesses is that it is not often a good idea. Business loans are risky, of course they are. Mortgages are less risky because for one thing there is the property they are secured against, and for another thing there is the fact that to the people who own the homes keeping up mortgage payments is just about the number one priority. But there is a third far more important point. Businesses create wealth; mortgages don’t. And the creation of wealth is incredibly important, but also by its very nature risky. Banks have become the bogey men of the 21st century. The public hate them. The truth is, however, that small businesses, the type run by entrepreneurs and that create wealth don’t really need banks at all, not banks as they are these days anyway. They need something far more. And curiously enough the venture capital industry has just been spelling out what it is.
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