You have probably heard on the news more than once that the number of new jobs has increased in the last month by a certain amount or maybe sometime it was just flat or even declined. New jobs mean that the economy is expanding. New jobs are good for employees since it means the supply of available jobs is growing and with more supply you have more options to choose from which usually translates to higher wages and better benefits.

So how are new businesses created? The answer is by borrowing money. New businesses usually start with an idea and a group of entrepreneurs that are enthusiastic about realizing that idea. An idea can be anything from computer software to real estate development. When a group of entrepreneurs come up with such an idea then would plan the necessary steps needed in order to realize it.

Every step in realizing a new business requires funding. Since most entrepreneurs do not have the cash needed to fund the business on their own they usually have two options one is to sell a portion of the business in return to cash that will fund it and the other to go to a lender like a bank and borrow money that will fund the business.

Borrowing money is usually the better option since the entrepreneurs can to keep their equity in the business while having the cash to build the business. So why do lenders give money to such entrepreneurs? The reason is simple they do it in return to an interest paid for the loan. A lender would usually evaluate the risk in the business. The higher the risk the higher the interest rate that the lender would charge.

For some businesses the risk is so high that lenders would simply refuse to lend money to such business. For such business like for example the hi tech software market the only funding option is through selling a portion of the business or in other words giving away equity for cash.

The ability to borrow money in reasonable terms is the fuel that runs the economy. The easier it is to get money for lower interest rate the easier it is for entrepreneurs to fund and start new businesses. Some of those businesses would fail but other would flourish and supply jobs and products to expand the economy.

When the economy is bad and many business fail lenders tend to stop lending money and wait. In such scenarios the economy is flat and can not grow. Many times the government of the central bank would intervene by lowering the interest rate or providing other incentive and sometimes even lending money itself in order to fuel the economy and create new businesses and new jobs.