Capital Funding - Banking Principles

Volume and velocity more important than interest rate

To bankers, the interest rate they charge is not the most important consideration.  They make money on cash flow. It’s the volume of interest they receive on the money they lend, and the velocity of their loan transactions that creates their revenue stream and profits.

Banks can lend 10 dollars for each dollar they take in as savings.  If the interest rate “spread” between savings interest they pay out and loan interest they take in is 2 percent, that means their volume of income could be several times what they pay out in savings interest – gross profits of 400 or 500 percent each year! 

If the bank increases the velocity of loans, their revenues and profits go even higher.

As an owner of your own captive bank you can realize these same growth principles of volume and velocity.  The more you borrow and repay your own bank, and the more often you complete transactions, the greater your bank’s assets will grow providing an expanding pool of tax-free capital for future financing needs, passive income and much more.

Next Step: Capital Funding - Capitalization Workhorse