Where to start...
What country is forced to borrow all of its currency from a central bank? Central banks aren't the source of money. If the US decides to print more money, they do that. They don't borrow it.
Paying back principal and interest? The whole frippin' idea of a business loan is that you borrow money to generate an income stream sufficiently large to be able to (among other things) pay back the loan. The economy is not a zero-sum game.
The reason every commercial bank in the modern world practices fractional reserve banking is that they have to make money somehow. If they have to keep all the currency they've got in a vault, they can't make money with it, and so they'd have to charge depositors for safekeeping. Moreover, it would be impossible to get a loan from a bank, since they wouldn't have any spare money. Without fractional reserve banking, we don't have banks in the modern sense, and banks have proved invaluable in running an economy.
For example, I've got some extra money. If I deposit it in a bank, somebody else who needs capital for a business can borrow it, provided it's using fractional reserve banking. If that's outlawed, then somebody who needs capital needs to stump around looking for individuals with extra money, and convince those people to lend money. I'm not ready to evaluate possible loans for how reliable they are. I'm not in a position to watch my money go away when the business goes bust. In other words, we add a tremendous amount of friction to the process of matching investors with entrepeneurs if we ditch fractional-reserve banking.