But the social purpose of loans is to help people who have an urgent need, or an unexpected one.
Living beyond your means isn't inherently part of borrowing money.
If you can't get a loan to buy a house, having to save for 30 years is in some sense, making you a lot poorer. You only have so long to live, and for 30 years, you don't get to live in the house.
And if you can't get a loan when something unexpected happens, then bad things could happen, that are really unnecessary. People don't have to prepare independently for all possible disasters because we live in a society.
If you think borrowing money is bad, what about borrowing things? Should rental cars be eliminated? Is it only that borrowing things should be free? Is borrowing a cup of sugar from your neighbor ok?
Edit: I should say, urgent, unexpected, or short term.
> If you lose, your downside is not limited
Your downside is limited to the amount lent
The other aspects which you see as deal breakers that make business impossible are actually all negotiated terms to maximize the likelihood of success for both parties.
Debt is an outdated concept and a dirty hack on the financial system, it allows one person to lend money to another person to run their business without owning any part of the business. In today's reality, there are two scenarios:
- The business succeeds and the borrower can afford to repay their debt. The lender only gets back their principal plus interest even if the business no matter how successful the business was. If the lender had invested in the business instead, would have gotten more out of it.
- The business fails and the borrower declares bankruptcy. The lender may lose all their principal; they may have gotten some interest payments if the business was running for some time but it typically doesn't come anywhere close to offsetting the loss of principal. Liquidating remaining assets likely won't cover it either. If the lender had invested in the business instead - In the event of business failure, they may still have been able to get similar returns because they could get a share of the value of remaining assets from liquidation. The only thing they would miss out on is preferential treatment in the event of liquidation... Which is the financial equivalent of travelling first class on the Titanic.
So debt as a concept doesn't make sense from the lender's perspective. As a lender, if you win, your upside is limited. If you lose, your downside is not limited (not any more than it would have been if you had owned the shares outright and could benefit from asset liquidation in case the business had to shut down). Not only that, but forcing the business to constantly make debt repayments only makes it more likely that they will fail. The lender is setting themselves up for failure from the beginning.
That's why only banks loan nowadays. It doesn't make sense. It just allows the Fed to keep giving free money to their cronies.