The Banking Problem

Introduction: The Invisible Drain

Every business owner understands the need for capital. Whether you're financing equipment, managing inventory, covering payroll during slow seasons, or seizing growth opportunities, access to money is the lifeblood of your enterprise.

But here's what most entrepreneurs never stop to calculate: how much of your hard-earned profit flows out of your business—and your family—through interest payments to banks?

This lesson isn't about demonizing banks. They serve a purpose in the economy. Instead, it's about opening your eyes to a mathematical reality that affects every financial decision you make. Once you understand "The Banking Problem," you'll never look at a loan the same way again.

Scripture spoke this truth thousands of years ago. When you borrow, you become a servant to the institution that lends. Your labor, your creativity, your risk-taking—a portion of everything you build—flows to someone else's balance sheet.

Interest: The Invisible Tax on Your Success

Business owners obsess over taxes—and rightfully so. You hire accountants, implement strategies, and structure your affairs to minimize what you pay to the government. Yet most entrepreneurs pay little attention to an expense that often rivals or exceeds their tax burden: interest.

Consider a typical service business doing $750,000 in annual revenue. Let's say they finance $80,000 worth of vehicles and equipment each year at 7.9% interest over 5-year terms. Here's what that looks like over time:

And that's just the interest paid directly to the bank. It doesn't include the opportunity cost—what those dollars could have earned if they stayed in your ecosystem.

Think about it this way: if you can earn 10% returns in your business (a modest expectation for a successful entrepreneur), every dollar you pay in interest costs you that dollar plus what it could have earned.

The Borrower's Dilemma

Most business owners find themselves in a recurring cycle:

This is the perpetual borrower cycle. It feels normal because everyone around you does it. Car dealers, equipment vendors, and banks have built entire industries around making this cycle seem inevitable.

But here's the question successful business owners eventually ask: What if the money I'm paying in interest stayed in my family instead?

How Banks Really Profit (And Why You Should Care)

Understanding how banks work illuminates why The Banking Problem exists—and suggests an alternative approach.

Banks operate on a simple principle: they pool money from many sources and lend it out at higher rates than they pay to acquire it. The difference—the "spread"—is their profit.

But here's what's really interesting: banks don't just earn the spread on your loan. Through fractional reserve banking, they can lend out significantly more than they actually have in deposits. A bank with $1 million in deposits might have $10 million or more in outstanding loans.

This is perfectly legal—it's how the banking system works. But it means your interest payments are generating returns far beyond what the bank paid to acquire that capital.

Compounding: A Force That Works For—or Against—You

Einstein allegedly called compound interest the eighth wonder of the world. Whether he actually said it or not, the math is undeniable: small amounts, given time, become enormous sums.

When you're saving and investing, compounding is your friend. A dollar today becomes two dollars in 7-10 years at reasonable returns, then four, then eight, then sixteen.

But when you're borrowing, compounding works against you. The interest you pay represents dollars that can no longer compound in your favor. Worse, those dollars compound in the bank's favor instead.

This is the fundamental insight behind Infinite Banking: it's not about finding a better investment—it's about recapturing the banking function itself.

The Hidden Opportunity Cost

When financial advisors talk about opportunity cost, they usually mean choosing Investment A over Investment B. But the biggest opportunity cost for business owners is far more fundamental: the money that leaves your ecosystem entirely.

Consider what you could do with the interest dollars you currently pay to banks:

Every dollar of interest that leaves your family is a dollar—plus all its future growth—that will never serve your mission, support your children, or fund your legacy.

Nelson Nash's “Volume of Money” Insight

Nelson Nash, the creator of the Infinite Banking Concept, had a crucial insight that most financial thinking misses entirely:

What does this mean? Consider two business owners:

Owner A has the “better” investment return. But Owner B—by eliminating the interest bleed—ends up with significantly more wealth. The volume of money retained matters more than the rate of return on a smaller base.

This is why successful business owners eventually realize: the game isn't about finding higher returns. It's about plugging the leaks where money escapes your system.

Breaking Free: From Borrower to Banker

The Banking Problem isn't solved by finding a better bank, negotiating lower rates, or avoiding financing altogether (which would limit your growth). The solution is more fundamental: become your own banker.

This is the core promise of the Infinite Banking Concept. Instead of paying interest to outside institutions, you create your own banking system within your family. The interest you pay goes to a system you control—and ultimately benefits your heirs.

We'll explore how this works in the next lessons. For now, the important realization is this: the banking function is not optional in a business owner's life. You will need capital. You will need financing. The only question is: who benefits from that financing?

Key Takeaways from This Lesson

What's Next?

Now that you understand The Banking Problem, you're ready to learn about the vehicle that makes Infinite Banking possible. In the next lesson, we'll explore why dividend-paying whole life insurance—and specifically policies from mutual insurance companies—is the foundation of this strategy.

We'll address common objections, explain why other insurance products don't work for this purpose, and help you understand what makes a policy “IBC-ready.”