Why rich people still get financing for their commercial construction

Normally we would expect that financing would be availed by people who cannot afford to do so. However, the rich can easily afford the being able to finance their own endeavors. In the case of commercial construction, the amount needed would be expected to be substantial. Most people would be unable to finance commercial construction on their own and have to rely on external financing to augment their lack of funds. We would expect the rich though to be able to afford it. So why would they still seek out commercial construction funding?

In order to understand why rich people would still avail commercial construction financing, we have to understand the cost of money. When people borrow from banks or other lending institutions, we would expect to pay interest for the amount that we borrowed. Borrowing money would entail costs and this is through interests. Because of this, people would normally try to avoid incurring such costs. Common sense would dictate that we use our own money then instead of borrowing as there is no cost that comes with it.

However, investing our money also entails income. We would be expecting some percentage as a return of our investment. Rich people do not tend to let all their money just sit and not grow. They did not grow rich that way. Instead, they would invest this in the hopes that it would earn more. With this, rich people would want to keep investing their funds instead of letting it sit idly in their bank accounts.

We may consider though that constructing a commercial building for a new business venture would be an investment. Rich people also see that which is why they would go into this as well. However, they would weigh which is cheaper and more beneficial to them – to borrow from banks or to use their own funds. If the rates of the banks are much higher than what they can get out of investing their money through other means, then it is more practical that they use their own money. However, there may instances when the rates of the banks are low or the investment returns are really high, higher than the interest rates of banks, then it would definitely be wiser for them to borrow funds from the bank. They can earn from investing their money through other means and also potentially earn from the borrowed funds once the construction is done.

 

The following two tabs change content below.

Emily H

Emily currently works for Dream Linux as a full time social media director, she has been actively involved with several social media campaigns as well as market research and social analysis.