The fact that it is not always easy to get a bank to play along with a new entrepreneurial project is typically not due to either conservative skepticism or ill will.
As people have realized how highly the financial sector leverages its commitments, there has been broad support for the stricter capital requirements of the Basel regulations. The big banks are generally considered to be so important for the stability of society that it is not an option to let them go down—and no one really has an interest in the states once again having to act as rescuers.
With the financial crisis fresh in our minds, it sounds like common sense to cushion the sector better against future bankruptcies.
But in order to take out this kind of loan agreement at all, you as a business owner must provide additional collateral (and secure the lender with a belt, suspenders, and everything you own and have).
However, the fact that the banks must be better padded also means that it will be (even more) expensive for small and medium-sized companies to obtain the vital liquidity.
When the financial authorities review a bank's assets, operating credits and financing of small owner-managed businesses are assessed to be subject to a significantly greater risk than loans secured by real estate. Because of the risk calculation, the loans to the small and medium-sized companies require proportionately more highly liquid reserves, which in turn increases the banks' costs and the interest the banks must charge on the loans.
The money that must finance the new start-ups, and keep the vital growth layer of new companies running, is thus far more expensive than the money we spend on building houses, or can borrow with security from our steadily increasing net worth.
It is not without reason that property prices in and around the biggest cities have exploded in recent decades, and unfortunately it is also not by chance that many potential entrepreneurs are turned down by the banks and never get to take the leap and try to realize their dream.
Of course, the inflationary trends in the housing market are also reflected in the real economy: the vast majority of property value increases are mirrored by correspondingly high private indebtedness and even a relatively modest slowdown in the housing market can in reality mean technical insolvency for many first-time buyers.
It would not be unfair to argue that our money and the way it is created favors the already established at the expense of the new and young—homebuyers as well as ideas—and that the system as such is deeply and thoroughly conservative.
(The fact that we as a society exempt gains on our own housing transactions from taxation only reinforces the age, sectoral and geographical distortions).
Not to torture myself with illustrative examples, but—
The difference between a brick-and-mortar secured loan of four percent and, on the other hand, a financing loan or a private credit of nine percent (which I myself paid the first several years I ran KABELPARK®) may sound innocent.
However, if you deduct a hundred thousand a year from one million, the difference in the end is a staggering one million and three hundred thousand. In fact, with the nine percent rate, you would have to pay the million back more than two and a half times and have to repay twice as long as with the four percent interest rate.
High interest rates could perhaps even be defended if what was produced was weed killer, cigarettes, betting, or it was a corporate structure where it was actually the lender who had to run the entire risk.
But in order to take out this kind of loan agreement at all, you as a business owner must provide additional collateral (and secure the lender with a belt, suspenders, and everything you own and have).
Self-reinforcing hype in the real estate market is not necessarily what adds real value to our society and local communities.
If you borrow for entrepreneurship and the establishment of a new business in the productive part of the economy, it is typically at an interest rate far above the interbank rate AND with high collateral. It is not so strange that many give up the dream of going solo and becoming self-employed. The risk of private financial ruin is far, far too great, and the prospect of a golden business correspondingly small.
All the self-inflicted in my specific case aside, it is, in short, crazy that it has to be so expensive to finance a beautiful and crooked little company—not least when borrowing money for a bald piece of land and a stack of bricks is still so relatively cheap.
Things must be able to exist on market terms, we hear again and again; implicitly earn interest. But what if the market and thus the market's conditions change over time, or if the market is actually dictated by the purchasing power and the money that is pumped into the economy via cheap credits anchored in real estate?
What if the market conditions are indeed not equal for all, but favor certain sectors with money at spot prices, and punish others with usurious interest rates? Don't we as a society—I ask, leading and indignant—have a damned duty to change those conditions in our common interest?
I won't complain. I had the opportunity and chose to pay for both years of creative downtime and extra maternity leave. Still, I believe that the broad consensus on money and interest is problematic.
Self-reinforcing hype in the real estate market is not necessarily what adds real value to our society and local communities.
I assume that most of us would rather stroll around a food market, or see what the young entrepreneurs are baking with in the late hours of the night, than we would stare at sterile glass facades and endless variations on the theme of a newly built detached house?
We can talk a lot about entrepreneurship, and make all kinds of targeted subsidies—however, that does not change the fact that the fundamental problem is something else:
If no one can make a living running the small independent workshops or running the small quirky restaurants, and it is not possible to maintain a decent salary as a creative artist, we will end up as a nation of mere administrators.
There we can sit and make sure everything goes according to the book, while with half an eye on Instagram we dream of succeeding and standing out.
If anyone, Matthew had got the point: To the one who has, more must be given!
Regardless of how many remarkable redistributions and how large a bureaucratic apparatus we put into the world, given time interest and compound interest will accumulate the values ​​of the chosen few.
If on the other hand we want a society bursting with small independent companies, wild start-ups and experiments in all sorts of strange directions, it requires cheap, risk-averse capital.
