Our world is driven by capitalism. You need only walk down any high street or through any mall to see just how much our culture is driven by money. And we aren’t saying that is a bad thing. Sure, capitalism has its issues. But so does any societal system.

Capitalism has many benefits for both our culture as a whole and on the individual level as well. But our society only functions as it does because of the key building block holding everything together. The Banks.

Love them or hate them, Banks are everywhere. Every mall, every high street. Every metropolitan cityscape or small-town village. Nowhere is safe from the spread of banks. And a common question we get asked is this: How do banks make their money?

 

Understanding Banks

It is easy to think that banks seem to function without actually making money. They simply store your money and move it around. So how do they pay their staff, afford rent and upkeep? And how is it profitable for anyone to become a banker?

We have spoken to a few experts, such as those at blutin and at Smythes to better understand exactly how banks turn a profit. We are going to break it down for you in simple terms.

 

Loans

This is the key moneymaker for any bank. Loans. Anyone can walk into a bank and apply for a loan. Of course, you need to get the bank’s approval with a solid reason for the loan. And the bank will want to be sure you can pay it back.

All banks will have an interest rate attached to the loan. This is unavoidable. This is how they make money. Say you take out a loan for $100. With interest you could end up paying back $120 to the bank eventually, making a nice $20 profit for the bank.

Now imagine that on a scale of thousands of dollars interest per day. A bank only brings in as much money as they are willing to lend out.

 

Investing

While a physical bank is often designed to store and manage your money, the companies that own the bank will have their hands in many different avenues. Investments and stocks are one area these companies love to dabble in. And where do they get the money?

From you. When you store your money with a bank, you are giving them permission to spend it. Relax, they don’t actually spend your physical cash. While it is in their care, they will use it to invest and bring in profit. This profit is returned to you as interest. The more money you leave with a bank, the more interest it accrues. It’s a win-win situation and a great way for both the bank and you to profit.

 

Mortgages

Mortgages are just very specific loans. They are for buying property exclusively and follow different repayment rules to a traditional loan. The reason for this is due to the size of the money being borrowed and the nature of the investment. Since you will be living in your purchase, the bank is sure you aren’t doing a runner with the money, so the repayment scheme isn’t as taxing (although it is still noticeable) and like a normal loan, the bank profits off a mortgage in the form of interest on your repayments. And, if you can’t pay up, they can simply take the property and sell it for profit as well.

We hope this has highlighted how banks make their money in a helpful and insightful manner.

There is no doubt that the effects of the horrific start to 2020 have been hitting everyone pretty hard financially. Many people have been left unemployed which has made taking care of general costs like housing and food pretty difficult, especially due to the country’s poor welfare payment system. Because of the personal economic struggles that people are facing, they are less inclined to purchase unnecessary items and so many businesses are starting to feel the toll. Though all businesses are feeling the strain of the economic crisis that the country is currently facing, nobody is suffering more than smaller businesses, and here is why.

 

Government funding

The government has not completely ignored the struggles that businesses have started to face and so have begun to offer grants to businesses to ensure their survival during these difficult times. This may sound like a useful gesture, however, they haven’t been very thoughtful when giving out these grants. They have ironically given these grants to bigger businesses, such as Mcdonalds, that don’t even really need the support right now due to their ability to still offer their services to the public. Smaller businesses already don’t have the influx of cash that a lot of bigger businesses have, so without that government financial aid, they are basically just surviving out of their slowly dwindling savings.

 

No contact procedure

You also have to take into account that a lot of small businesses aren’t just retail businesses, but are businesses that offer a service. However, due to the current social distancing measures that are in place, lots of small businesses that offer a physical service are not able to operate. A good example of a business like this is a hairdresser that needs to make physical contact in order to complete the service.

 

There are also a large number of small businesses that require entry into the home in order to operate. So for example, pest control businesses such as yalepest depend on completing home surveys in order to complete their jobs. However, rules that exclude people from entering households make this a difficult task. Because of this, lots of businesses such as pest control, plumbers and decorators are really taking a hit and are even ending operations indefinitely.

 

Niche Businesses

Most of the businesses that we would consider to be ‘small businesses’ are usually labeled as so due to their niche appeal. These businesses already trade with a smaller amount of people due to their lack of necessity. An example of a business like this would be something a little odder like ‘Organic Home Fragrances’ or other businesses along those lines. Businesses like this are really being hit as their already quite small client list is being damaged by the economic issues that people are facing.

 

However, there has been more social outreach to save businesses that are a little quirkier, in order to maintain the character that they bring to certain communities.

 

Lack of postage opportunities

A lot of bigger businesses have simply decided to move a lot of their product sales online in order to keep their business afloat. This is an excellent idea for those that are able to do this but have however become a major issue for smaller businesses that can’t do so. Because people are trying to avoid leaving the house unnecessarily for safety purposes, the use of online shopping has only increased. Because of this, businesses that don’t operate online are being forgotten about. These businesses are usually the smaller local shops that simply don’t have the finances or resources to do so. These businesses are really struggling and so it may be worth considering giving them a little more support.