Beware of Easy Money and the Risks It Brings

Lessons from my father.

In early 1986, my father – who was a property developer – received a phone call from his bank manager advising that the bank had just approved an open line of credit for him. What was remarkable about the call is that dad had not made any such request. This was an unsolicited offer from the bank, vying for market share.

The property market would go on to boom in 1987, followed closely by a stock market crash, interest rates spiking to 16% and, by 1990, the economy had fallen into a deep recession.

“If your bank ever calls you to offer you easy money, thank them profusely, and then sell all your assets ASAP”, was how my father later encapsulated the lesson.

Money is a store of value. Creating value is neither easy or cheap. It follows therefore that money should neither be easy or cheap.

If making money is easy or borrowing it is cheap, something is awry and you should be on high alert.

So the next time you hear yourself complaining about how hard it is to obtain a business loan, consider the alternative – “easy money” – and know that it’s often the precursor to a reckless boom followed by an inevitable crash.