Recently I spoke with a business owner who was complaining because he was trying to refinance some loans and each of the banks he approached wanted him to put up his assets as collateral for his loans. In this persons opinion this was unreasonable because the bank wanted him to risk his personal property if he can’t repay the loan. He feels this is incredibly unfair of the banks.
The thing this person doesn’t seem to understand is someone has to take the risk. If he collateralize’s the
loan, if he fails to repay the loan, the bank can take his personal property. If he doesn’t collateralize the loan and he fails to repay the loan, the bank is out the money. In his opinion, the bank should take the risk and he shouldn’t have to.
Is this really fair? It’s one thing if the loan is fully collateralized some other way. For example, if the loan is for real estate and the value of the real estate exceeds the value of the loan that makes sense but if there isn’t something backing the loan, why should the bank be the one to take the risk (and keep in mind the “bank” is us since shareholders own it and the FDIC is insuring it etc).
When we start taking responsibility for our actions and stop expecting others to take the risks so we can benefit then we can start benefiting from our efforts. That, and that alone, is truly fair
Have a great day!