Is charging interest a sin? Scripture offers a clear directive on charging interest. This based on scriptures like:

¹⁹ Do not charge a fellow Israelite interest, whether on money, or food or anything else that may earn interest. ²⁰ You may charge a foreigner interest, but not a fellow Israelite, so that the Lord your God may bless you in everything you put your hand to in the land you are entering to possess.

Deuteronomy 23:19-20

I will acknowledge that this scripture could be open to interpretation but, in my experience, most Christians shy away from the idea of charging interest to anyone, based on New Testament teachings like:

⁴³ ‘You have heard that it was said, ‘Love your neighbour and hate your enemy.’ ⁴⁴ But I tell you, love your enemies, and pray for those who persecute you, ⁴⁵ that you may be children of your Father in heaven. He causes his sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous.

Matthew 5:43-45

(As a side-note, It is worth stating that, as Christians, we should think of non-believers as our harvest rather than our enemies.)

Based on the above scripture, Christians are called to love everyone regardless of whether they are friend or foe, believer or unbeliever. Hard to imagine Jesus offering us this teaching and then stating that it is okay to charge non-Christians interest on the grounds that they are not believers.

Regardless of your interpretation of the above scriptures, I’m sure we can all agree that they relate to our dealings with other people.

One area these scriptures do not cover is the idea of charging companies interest. I have already shared some thoughts on Interest on Loans in the Modern Economy.

In this post, I want to concentrate on a very specific type of financial relationship for business owners – that between you and your own company. More specifically, is charging interest a sin, when you are charging your own company?

Is Charging Interest a Sin?

Here is the scenario. Michelle is a small business owner. At the end of each financial year, her consulting firm submits its tax return, showing all the money earned, less all the expenses incurred. Anything that is left is profit which incurs a Corporate tax of 21%.

In other words, if Michelle’s company made $100,000 profit, it will have to pay $21,000 in tax, leaving $79,000. This is not Michelle’s money – yet. It is her company’s money and declared as retained earnings after tax.

For Michelle to access that money, she needs to declare it as dividends and she will have to pay tax on those personal earnings as per government regulations. In other words, she pays tax twice on the same earnings; once in Corporate tax, and then again as personal income tax.

But, what if Michelle had loaned her business $50,000 as start-up capital and charged her own company a hefty 12% interest per annum on that loan? In other words, the company pays Michelle $3,000 every year in Interest on the $50,000 loan.

Is charging interest a sin in this case?

The difference is small but significant. Sure, Michelle would likely still have to pay tax on that interest-based income in her personal capacity but her company would save the 21% corporate tax. This amounts to an overall saving of $630.00 each year. The rest of her earnings would need to be declared as salary or dividends and would incur standard taxes as before.

It is worth noting that salaries are also pre-corporate-tax expenses so there may be no material gain. It would depend on local laws.

Obviously, you should always seek advice from a qualified CPA or financial advisor when dealing with taxes as tax laws vary from place to place and time to time.

Is charging interest a sin in Michelle’s case? Assuming the above financial structure is legal in her place of business and offers a material gain over declaring the income as salary, let’s look at the scriptural implications of this transaction.

Is she charging interest? Yes. Can we consider this usury? Possibly; it is a hefty, though arguably justifiable interest rate.

Is she charging interest to a believer or unbeliever? Well, neither really. Her company is not a real person. It has no eternal soul; it is a piece of paper in a filing cabinet somewhere in the government archives. Furthermore, the company belongs to her and her alone. No other people are involved.

Michelle is merely using the tax laws to save herself an overall tax bill of $630.00/year in a manner that is perfectly legal and aboveboard. No underhand shenanigans. All perfectly transparent in both her business and personal tax returns. No harm done.

This type of transaction is not addressed in scripture because no such infrastructure existed in Biblical times.

Of course, some Christians may still feel that this does not sit well with their conscience and that is okay too.

¹⁴ I am convinced, being fully persuaded in the Lord Jesus, that nothing is unclean in itself. But if anyone regards something as unclean, then for that person it is unclean….²³ But whoever has doubts is condemned if they eat, because their eating is not from faith; and everything that does not come from faith is sin.

Romans 14:14 & 23

If, despite the above argument, you still regard this type of financial structure as sinful for any reason, even though it may be legal in your country or state of residence, then don’t implement it.

Only pursue those financial activities that:

• make sense
• are legal and
• leave you with a clear conscience

NOTE: For the record, I live in the UK where the above mechanism would be 100% legal and perfectly moral for me, personally (i.e. I would have a clear conscience implementing this). However, it would not make sense as the tax implications would be no different if I declared the income as salary.

As Christians, whether we are business owners or dealing with household income, we need to understand that we are managing God’s money.

One of the most powerful ways of reducing expenses in a business is by switching from credit to cash.

I learned this lesson through one of my businesses, a small boutique hotel. When I took over the business, it was really struggling. I managed to increase the occupancy and revenue from rooms increased substantially. However, I really struggled with the restaurant as expenses had run out of all control. To be profitable, we had to work on a 65% Gross Profit (GP). In other words, for every $1,000 the restaurant earned, we had to spend no more than $350.00 on raw materials (i.e. stock).

Somehow, my team was unable to achieve this. They couldn’t even come close. Each month, I would check sales, then I would look at my invoices from suppliers, only to find that the staff had purchased $700.00 or more for every $1,000 in sales. In some months they were somehow able to spend everything we had earned and in one instance, they even spent more than we earned for the month!

Managing God’s Money

This caused me no end of stress. Apart from the financial losses I was incurring, as a Christian business owner, I was painfully aware that I was mismanaging God’s money.

I tried everything. Regular stock-takes, inventory control systems, reporting systems, monitoring, management sign-off on all purchases. Nothing helped. Instead, I found myself slowly going out of business.

In desperation, I contacted my suppliers and explained the situation. I had racked up huge bills on my accounts and simply did not have the funds with which to pay them.

I switched all of my accounts to Cash on Delivery (COD) and made arrangements to pay off the arrears on outstanding accounts. I then sat down with my hotel manager and restaurant staff.

Based on average sales over the past several months plus pre-booked events we were able to predict, with reasonable accuracy, how many people we could expect through the restaurant in any given week and how much those customers were likely to spend. Based on that prediction, I could calculate our estimated revenue for the week and, by extension, roughly how much we should be spending on stock.

I drew this money in cash and told the staff that this was what they had to spend for the week so they should spend it wisely. All suppliers would expect to be paid in cash for any stock they delivered going forward. Any additional funds would need to be specifically requested and authorized before placing further orders.

It was my hope that this would bring some sort of improvement over time.

In fact, within one week of implementing this new strategy, the kitchen was suddenly able to meet its target budget and consistently managed to do so almost every week after that. What changed? Had staff members been stealing stock before? Possibly. However, all the systems were already in place to identify and prevent theft before I implemented this strategy so this was unlikely.

In fact, I had previously caught staff members who were stealing and already dealt with that situation. Yet, the massive expenses continued. Right up to the moment we implemented a cash-based payment system. I believe the problem was less sinister than that. The fact is, when people had the freedom to spend without giving any real thought to how and when their purchases were paid for, they did just that.

Giving the buyers a fixed amount of cash each week and designating them the responsibility of managing that cash forced them to consider their purchases more carefully. They put more thought into ordering, taking advantage of special offers when they came up and only buying what they absolutely needed in any given week rather than making those extra ‘convenience’ purchases they had been making previously.

The result was, of course, less stock in the store rooms which resulted in more frugal use of the stock on hand. Instead of over-catering and creating reams of waste which then got thrown in the bin each day, the kitchen staff was forced to be more careful to ensure that they only used what was actually needed. The net result? The restaurant immediately became more profitable and within a few months, I was able to pay off all of my outstanding supplier accounts.

On consideration, I realized that my family expenses were also unnecessarily high. As I had done in my business, I needed to become better at managing God’s money in my personal life.

By way of experiment, my wife and I decided to apply this same rule in our personal lives. Instead of spending on our credit and debit cards without any thought about funds, we began drawing cash on a weekly basis for our family budget. 

Having gone through our accounts and calculated what we actually needed, we set ourselves a weekly budget and drew that amount in cash at the beginning of each week. If the money ran out, any additional purchases would have to wait until the following week.

To our surprise, the same thing happened when managing God’s money in our personal lives as had happened in my business. It was amazing to realize how often we didn’t even spend all of our allocated weekly budget. Again, nothing else had changed. We had carefully assessed our weekly budget and ensured that we only included essentials in that calculation. 

Yet, when spending cash on hand, we ended up with change at the end of each week. Instead of squandering this, we simply deducted any money left over from the next week’s drawings. Net result? All the money saved on shopping each week began to build up as savings in our bank account.