Not just that but Bitcoin is not good for lending ,because it's a deflationary currency. You take a loan of 500$ in 1 BTC, the BTC shoots up to 1 million $, and you now owe 1 million $.
No way to repay this, people who borrowed before 2013 have all defaulted, and there is no way to collect the capital back, because they are international people.
Bitcoin price can go both up and down, I believe it will be fairly steady for a while now that we have the halving behind us and without capacity increases in the network. But yes, BTC price volatility ultimately hurts lenders. If one believes the BTC price will go to the moon anytime soon, then it's IMHO just a bit too greedy to expect interest in addition to the growth of value.
If you keep your business bitcoin related then the funds you earn in btc will increase with the value, the problem arises when someone burrows btc turns it into a centralized currency. The $ for example never has unexpected falls or rises. Nothing huge anyways where as bitcoins can. Do business in bitcoins and the money you earn rises with the value of btc.
For short term loans this is usually not a big issue. I think one of the best use-cases are local bitcoin trading (i.e. selling and buying bitcoins on localbitcoins) - sometimes someone wants to buy 5 BTC and the seller has only 3 BTC available - borrowing 2 BTC for a day or two is a nice option, especially if the trader knows it will be easy to convert the fiat into bitcoins again.