Final answer:
Interest on a loan for a business is seen as an asset to the bank since it is the bank's expected return on its loaned funds to the firm. The value of a loan is often determined by market demand in both primary and secondary loan markets. Should the business fail to repay, legal action may be taken to ensure the bank recovers the owed funds.
Step-by-step explanation:
The interest on a loan granted to a business can be regarded as an asset from the bank's perspective. This is because when a firm borrows money, it agrees to repay the loan with interest, which constitutes the bank's return on its loaned capital. Hence, interest payments represent a legal obligation of the borrower to pay money to the bank over a set period, adding to the bank's assets.
When considering the value of a loan, it can be challenging to gauge its worth in present terms. One common method is to determine what someone else in the market would pay for it. This interplay between lenders and buyers of loans constitutes the primary and secondary loan markets, where loans are originated and subsequently bought and sold.
If a business fails to meet its obligation, the lending institution may enforce recovery through legal means, potentially requiring the borrower to liquidate assets to fulfill the debt. This emphasizes the loan's role as an asset to the bank, given that it is backed by the firm's obligation to repay.