Banks have a preference to lend whereever they will make the biggest profit for a certain level of risk, and therefore don’t like lending money unless they are confident they’ll be repaid.
When banks make mortgage loans, they know that even if the borrower doesn’t repay the loan, the bank can repossess the house and sell it to recover some of the money. But many businesses don’t have a great deal that can be repossessed to recover the value of the loan. So banks tend to lend far more for mortgages than they lend to businesses. In the ten years before the financial crisis, 51% of bank’s additional lending (i.e. newly created money) went to lending on property (residential and commercial) whereas just 8% went to businesses outside the financial sector.
Posted in: 2. The Current Monetary System