PERSONAL AND BUSINESS LOANS

by the device of inviting bondholders to bear the outgoesconnected with the improvement, in consideration of re-ceiving a part of the increased income which it is hopedwill later follow from these improvements.

§5. Business vs. Personal Loans

Business loans therefore serve to reshape the incomestreams to conform to the time preferences of theirowners just as truly as do personal loans. All financingmay be considered as contrived to keep income flowingsmoothly to serve human impatience.

The important difference between business loans andpersonal loans is not as to impatience but as to invest-ment opportunity. In personal loans the opportunityprinciple plays a minor role or none at all. The personalborrower borrows not to invest but to remedy or preventa present dearth of income because of illness or thedesire to anticipate future income, the amount of whichhas little or nothing to do with the loan. The businessborrower, on the other hand, borrows to remedy or pre-vent a dearth of present income because he wishes toinvest and increase his future incomes. Each is impelledby impatience to fill a hole in his present income, butthe one hole was cut by involuntary illness or voluntaryspending, the other by voluntary investment.

Let us examine this difference more in detail. Let ussuppose two borrowers, one a personal borrower, becauseof some misfortune such as an illness, and the other abusiness borrower, because of an investment. Let us sup-pose that, otherwise, they are alike in all respects affect-ing our present problem. Each has a prospective incomeof $10,000 this year and $12,500 next year, after allowingfor the effects of the misfortune in one case and for that

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