16 November, 2013

1-1-9-9 value creation, the forms of value: Loan

So, you don't have any brilliant idea that you can turn it to a business, but you are lucky enough to have a descent amount of money

So what would you do? Lend it, with interests. That is LOAN

1-    You have some assets, usually money (if another asset, you have to compensate for the maintenance and stuff, and that would be a lease)
2-    Find people who need that money upfront, and they are everywhere
3-    Determine the interest rate over the specified time (enough to compensate for not having use of this money)
4-    Estimate the risk of not being paid-back, and be prepared for such risk
N.B. it is not that much of a risk, there are tons of precautions there that cover you well, and that "collecting collateral" thing, meaning that you legally have the right to collect the asset the borrower used your money to acquire, in case he couldn't pay back

5-    Customers (borrowers) pay back the (loan + interests) in payments, over certain amount of time

 It's a pretty safe business to do. Actually it is not a business at all. There is no effort form you to do, you just sit there and wait for the payments (which you clearly don’t use it, or else you wouldn't have lent it in the first place :)