Debt can ruin a business

Although the Bible never draws a hard line against indebting one’s self to another, Proverbs is full of admonitions about the foolishness of this practice. “The borrower is the slave of the lender” (ESV, Proverbs 22:7) is one of the most vivid examples. Temporary borrowing may allow a business to capture an opportunity that wouldn’t be possible if it had to wait until the funds were generated, but if a business regularly needs these type of capital injections it’s likely a symptom of poor management than amazing opportunity.

Even worse, a business places itself in danger whenever its long-term future is dependent upon debt. This may happen when the owner doesn’t prioritize paying off its initial debts, or when the business is grown by borrowing rather than profit generation.

In spite of the risk associated with borrowing on debt, lending isn’t encouraged either. Yes, there are verses like “It is well with the man who deals generously and lends,” (ESV, Psalm 112:5) but just a few verses later the author summarizes this type of lending as a free distrobution to the poor (Psalm 11:9). This is hardly what most think when they hear the word “loan” and, while this doesn’t preclude giving a loan with interest, there’s a danger this practice can become a source of injustice with the business. It would be unwise for any business to depend upon loan repayment (Burkett).

Importance

Many business opportunities, like purchasing a home, essentially require a degree of debt to access customers while there’s still an available market. It’s risky, and a wise business person will prioritize the removal of that debt above any other investment his company makes. The debt-free business can withstand a downturn without default, but a business that depends upon debt has only to wait until the market ruins it.

Likewise, a business that is able to lend must be careful it doesn’t become a source of injustice. Few businesses lend without anticipating a return, but seek a return without considering the impact the debt, and especially the interest, will have on the borrower. Agent’s greed to make easy money off new home owners and a lack of bank oversight were two major causes of the housing market crash memorialized in the movie, The Big Short.

Application

Lending and borrowing is a core part of American life. Whatever I pay for on a credit card, I am borrowing that money from the business extending our credit. When my company supplies a service to a client who doesn’t immediately pay, it’s added to our accounts receivable and becomes a form of lending. Business has run this way for so long that avoidance of debt where possible doesn’t even make sense to many.

Therefore I will anticipate resistance when I’m cautious about lending and borrowing. I will expect other business people to question my decision to prioritize the elimination of debt early on, and to doubt my sanity when I turn down lending opportunities that would net the company considerable gain at other’s expense.

Rebuttal

While it is foolish to enter debt out of greed or impatience, there are circumstances where debt is sometimes wise. Many opportunities are off the table if no debt is allowed, even opportunities which could save the business.

References