Re:Insects Are in Serious Trouble
by pps43 on Monday October 23, 2017 @03:02PM
(#15535976)
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).
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Right, 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.