gold, page-49299

All sounds great in theory...but the reality of your example is slightly different. Your example is laughable....and I think you are just having a laugh at us other punters. A few pointers to start.......

1. It sounds to me Bruce doesn't have much of a brain if he has "a great idea to develop, manufacture and sell Widgets [...] needs capital but has no productivity and no prospect of productivity for three years"... but has not first attained some skills in the area of making widgets and been employed in that capacity and then saved up a fair bit of capital over time ready to fund at least the start up phase.

2. Based on your story, it sounds like the bank also doesn't have much of a brain if they were to simply "look at his proposal and agree to a secured loan" so Bruce can "pay his workers and creditors as he moves through (the) development phase of his factory". BUT, in fact, the bank is very clever, because not only are they desperate to lend money - they con poor old Brucie into giving them a 1st mortgage over what can only be his owner occupied property (I'm sure Brucie is only leasing the factory at start up).

3. It appears Brucie is getting incompetent financial & business advice because, on his above business idea - how many budding business owners would seriously try and fund it with 100% bank lending (no matter what the interest rate!!), 100% secured against his home....when he is going to see no income for 3 years? Most people in this situation would mainly do it with equity - NOT DEBT!

Assume you are the lending officer of the bank Dr Who.........

Brucie has ambled in with his above business idea. He has asked you for - let's say $500k start up capital. He has no money of his own to contribute to the business, no previous business experience - not even in the subject area, no existing business plant or machinery, no business related security to offer you, he expects the business to make no income in the first 3 years, he has no current clients and he will have to employ staff from day one.

Are you seriously telling me you would agree to lend your clients' monies in this case and "millions of small, medium and large transactions across the globe"? If so, I think you are deluded.

Most competent lenders would not have a bar of this lending proposal. BUT - in your defence Dr Who - there are a lot of lenders who have lent on just Bruce's type of scenario and that is exactly why the financial world has so much unsustainable debt. It is a mix of insatiable greed, careless lending and incompetence.

I spent most of my business life helping people like Brucie and I can absolutely tell you - there are many hundreds (& probably thousands) of so-called small businesses in NZ who are so laden with debt that any and all profit is all going to the banks. Most of them are hardly getting a wage - let alone profit...all because of DEBT.

But not to worry - the market will soon be sorting things out....