Question

If you take any personal financial classes, you will more than likely hear and be warned about keeping out of debt. For instance, Proverbs 22:7 says, "The rich rules over the poor, and the borrower is servant to the lender." Yet, from an accounting perspective, the balance sheet incorporates liabilities (debts) and is part of the accounting equation. If you wanted to run your business according to godly principles, how could you balance this with the idea of borrowing money to start a business or to grow a business?

Answer 1

Well debt can be a good tool if used properly and very harmful if used unproperly. Businesses can grow through debt, because it will provide various tax benefit.

How you can reduce your tax is that while calculating Profit after tax (PAT) you have to pay interest on your borrowings and through this way your Profit after interest before tax(PAIBT) is reduced and then you can calculate tax, and then you will get reduced PAT.

So businesses get help with the debt because we can use that money to run our business and grow our business too.

On the other hand, there is always a doubt that our business will run or not, so if our business doesn't run so it'll get shut down because after that we can't operate after a certain time because we have already taken the loan to run our business and slowly we'll run out of money.

Or we can take more loan but again there is a great risk of taking loan because the interest on borrowing is a pain and you have to pay interest on regular basis.

In this way the debt become a problem for us because if business income is less then we have to pay the money from our own pockets, and it'll be a terrible situation for us.

This 22:7 rule also says that the rich rules on poor because, rich people don't much depend on debt, becuase they know that it's not good for anyone and the interest is a big burden and a timely payment is also a burden.

Whereas poor people or those who took loan, most of their life is gone in paying the instalments and they can't do things according to them. They have to prepare their budget according to the instalments which have to be paid first then think about other things.

So we can say that debt is not good for anyone.