I was just looking at investment opportunities, and I found a number of places offering bonds paying up to 12% interest over two years. My first thought was, I can get a loan from my bank for 5% interest - so if I get a loan to use to buy the bond, it's free money!
Except, if I can do it, so can they - and paying 5% on the loan is a better deal for them than offering 12% on the bonds, so why are they doing it? Why sell bonds rather than get a loan?
Bonds offered by the government seem to be paying less than 3%. So are these other bonds all just a scam?
Edit: For clarification, in response to comments.
- 12% interest means that, if I invest $100, then at the end of the year, I will receive back $112.
- My local bank is willing to loan, both secured and unsecured, at a rate of approximately 5%. If they are willing to offer this to me, an individual, I see no reason why they would offer significantly worse terms to a corporation.
- The company offering the bonds is offering them at significantly worse (for them) terms - i.e. 12% is bigger than 5%. The bonds they are offering are usually secured by some sort of tangible asset, e.g. property, which a quick google says can be mortgaged for only 4% interest.
Leading to my question: Why are they offering the bonds at such good rate, rather than going directly to a bank or other lender and arranging a mortgage? Dealing with large numbers of small investments from individuals is much more work than doing a single deal with a large institution, so there must be some reason why they are not able to do so. What is that?
I had included an example link, but someone removed it so I guess I'm not supposed to do that. So if you want to see an example, just google "bond investment", and at the top are a bunch of ads saying things like "Fully Asset Backed and Secured Bond Investment Up to 14% Per Annum Returns", which is so good that has to be a catch somewhere.
This is not a duplicate question, because I'm not asking whether it's possible for me to borrow money to invest with them, I'm asking why they don't.