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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