A great deal has been written about borrowing from a Christian perspective. (See the E-book: The Christian Guide to Financing Growth). So much so, that there are people who make their living advising people on this issue. On the other hand, little has been written on the other side of that coin: lending.
Lending is the flip side of borrowing. Every time there is a borrower created, there is also a lender. You can’t have one without the other.
Just like there are Biblical principles that can guide our borrowing, so too there are Biblical principles that should guide our lending. The Cambridge English Dictionary defines business lending as:” the activity of lending money to people and organizations which they pay back with interest. “
For a business, this lending usually takes a couple of forms:
1. Extended terms on purchases.
In this situation, a customer negotiates extended terms, say 120 days, instead of your routine terms of purchase – say 30 days. These extended terms are a form of loan to the customer in that you are allowing him/her to use your money for a few months. Typically, the customer pays an interest rate for the privilege of using your money.
What may be a more common situation is that the customer does not negotiate extended terms but fails to pay you within the terms he/she has agreed upon. In business terms, the receivable becomes past due. While you may not have planned for it, and this loan is against your preferences, you still find yourself lending money, albeit unwillingly, to the customer.
2. Financing major business sales.
This is a similar situation, but it varies in the amount and the formality of the loan. This kind of situation may occur, for example, when someone sells a franchise and finances the purchase. So, a franchise buyer pays $200,000 for a franchise from you, with $30,000 down. You finance the remaining $170,000 in the form of a formal note with specific payment terms and interest rate. It doesn’t have to be franchise – any large purchase qualifies for this type of lending – a home, office building, yacht, etc.
3. Outright loans made to friends and/or business acquaintances to help them start or expand a business.
For example, your nephew has an idea for a new digital business. He convinces you of the merits, and you lend him $10,000, which he agrees to repay with a 7% interest rate, over the next five years.
Qualities of loans from the lender’s perspective
Just like there are qualities of debt from the borrower’s perspective, so too are their qualities of loans from the lender’s perspective. This has been an issue for which a great deal has been written from a worldly perspective. For example, the three Cs of credit are a standard mantra in the lending industry:
The Three Cs of Credit
Character: refers to how a person has handled past debt obligations: From the credit history and personal background, honesty and reliability of the borrower to pay credit debts is determined.
Capacity: refers to how much debt a borrower can comfortably handle. Income streams are analyzed, and any legal obligations looked into, which could interfere in repayment.
Capital: refers to current available assets of the borrower, such as real estate, savings or investment that could be used to repay debt if income should be unavailable.
A loan made to people or businesses with a higher three C rating would be a higher quality loan than those with a lower rating. This is the rationale behind credit scores for individuals and ratings (from organizations like Dun & Bradstreet, Equifax, and Experian) for businesses.
Principles of lending for Christian businesses
There is almost nothing written in the New Testament addressing the issue of lending. The Old Testament, however, contains some very specific directions in the Law of Moses. God’s people, for example, should not charge interest when lending to one another. (Exodus 22:25, Leviticus 25:37, Psalm 154:5, Ezeckiel 18:8)
With that as background here are several Biblical principles that can serve as guidelines.
Principle: Just like there is no Biblical prohibition for borrowing, there is no Biblical prohibition for lending. We may lend. Lending to people in need is encouraged.
Principle: From a Christian perspective, since debt represents a form of servitude (Proverbs 22:7) for a Christian, we should be very slow to put another Christian into debt by making credit or money more easily available. We are putting another Christian in bondage and are obligated to a time-consuming process if they don’t pay back. (See the e-book, How to Collect a Debt from a Christian Business
Principle: If we do lend to another of God’s people, it probably should be lent without interest.
Principle: Extending payment terms is a form of lending. Do it very carefully.
Principle: If lending, (or extending payment terms) the amount should be such that you could forgive it, if necessary, and it would not severely and adversely impact the company.
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