I apologize in advance if there is an obvious obvious answer to my question.
Why would someone loan you 250 btc to get paid 1 btc per day in interest when they can loan the funds directly to pirateat40 and make 2.5 btc per day?
Because pirate has 0 BTC storage available.
edit: Also, even if he had storage available, when the earlier depositors put in their money, you'd get squeezed out. In addition to this, diversification of risk is good: I hereby give pirateat40 full permission to pay out the money from my BTC lending account if I disappear, try to scam people, etc. and do not pay back the money and interest.