Money lending has been practiced in one form or another since the dawn of time. Although financiers are often unfairly blamed when the economy goes awry, the practice of loaning money to others and charging interest is a reputable profession and has contributed highly to our successful society.
A loan is a written or oral agreement for a transfer of cash from the owner to the borrower. The borrower promises to return the cash according to the terms of the agreement, usually with interest for its use, at some future point in time. The lender takes a risk that the borrower may not repay a loan. The interest is in exchange for that risk.
Many people would be unable to own homes or businesses if they were not able to borrow money. For example, a person wants to open a business but does not have the capital. He or she can borrow the necessary funds and pay the lender back, with interest, at an agreed-upon time in the future. This is called a business loan. A business loan is a sum advanced to a business that must be repaid with interest.
A business loan can be for opening, maintaining, or managing a company. The money may be used for working capital, equipment or inventory purchases, or for buildings and acreage. The interest rates on a business loan are higher than the rates for a personal loan.
The practice of money lending is mutually beneficial to both the lender and the borrower. The borrower can use the funds to open and grow his enterprise in exchange for a promise to pay the lender a certain amount of interest in addition to the principal over a period of time. Both the lender and the borrower benefit from the agreement. Many people who aren’t directly involved in the exchange benefit also, because they have access to goods and services that are made possible through the exchange.
By investing their capital judiciously, moneylenders have helped to enrich our society in many ways. Industries such as automobile manufacturing, technology devices and medical innovations would never have been possible without the capital provided by moneylenders. Owning a home or a business would be possible for only the very rich.