The plans of the diligent lead surely to advantage, But everyone who is hasty co
ID: 2812587 • Letter: T
Question
The plans of the diligent lead surely to advantage, But everyone who is hasty comes surely to poverty. Proverbs 21:5
For the LORD your God will bless you as He has promised you, and you will lend to many nations, but you will not borrow; and you will rule over many nations, but they will not rule over you. Deuteronomy 15:6
The rich rules over the poor, And the borrower becomes the lender's slave. Proverbs 22:7
The Bible verses noted above provide insight into planning, and the two sides to borrowing. Today, debt is utilized in the normal course of conducting business and in people’s personal lives. View the video trailer on Too Big to Fail in our Chapter 1-4 Resources. What role should debt play in business, in our personal lives? How do you reconcile your view with biblical teaching on debt?
Explanation / Answer
Debt is simply an obligation to pay someone in the future. It can take the form of
If a company expects to expand its operations through a source of debt financing, it has the following advantages:
1) Retain control: When you plan a credit institution's debt financing, the lender has no voice in the way you manage your business. You can take all business decisions. The business relationship ends when you have repaid the loan in full.
2) Tax advantage. The amount you pay as interest for borrowed money is tax deductible.
3) Easier planning. You know in advance exactly how much capital and interest you will pay each month. This simplifies the budget and financial plans.
However, agreeing to high level of debt financing can take a form of potential risk to the business/personal life:
1) First, you need to have a good credit rating to get a loan.
2) You need to follow financial discipline to make repayments on time. If payment is not made on time, the possibility of insolvency increases.
3) By accepting to provide collateral to the lender, you could place your business at potential risk. You may also be asked to personally guarantee the loan, potentially putting your assets at risk.
4) When you're in debt, it's hard to think about putting money into an emergency savings account. But this is actually one of the first major steps you can take to get rid of debt.