You're forgetting the option of a borrower defaulting. Making a loan carries risk for the creditor. He's receiving interest on the loans to make up for that risk. A successful loaning operation will have less cost from loans going into default than interest payments from "good" borrowers and will thus make a profit. Operations loaning out too riskily or at too low interest will see their defaults exceed the interest payments and thus go bankrupt (in a hypothetical system, not in the current fucked up one with the lender of last resort, bailouts, artificially low interest rates and consequent malinvestments, economic inefficiencies, unreliable price signals and of course inflation).