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
The above scripture goes to charging interest when we lend to others. As this is in the Old Testament context, it is arguable that it leaves much open to interpretation in the current dispensation. If Israelites were forbidden from charging each other interest but were allowed to demand interest from foreigners, what does that mean to us today?
Are we forbidden from charging fellow-believers interest but allowed to charge non-believers? Or should we operate in the same spirit as Jesus taught when he said:
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
By that standard, we should treat all people, believers or non-believers, alike and never charge interest on any loan. This becomes even more complicated in the modern economy.
What about lending to companies? After all, they’re not people; they are pieces of paper in a filing cabinet somewhere in the government archives. Do the same rules apply?
If a friend starts a company and that company needs some start-up capital, any loan made is to the company (a separate legal entity), not the friend. Could we charge that company interest on the grounds that it is not a real person?
Or, what if I took a 20% ownership stake in the company but then made the loan interest-free? In other words, my friend starts the company and gives me 20% ownership of the business. I then loan the money at 0% interest and the company pays me back over three years. At the end of the three years, I now have the loan repaid in full, no interest charged – but I now own a 20% stake in all the profits that company earns for the rest of time.
Alternatively, I could sell my shares back to said friend at a reasonable price based on the company’s value at time of sale. Would we consider that money to be interest on the original loan? Technically, it is not.
It’s all about risk and there are subtle differences. If I charge interest on a loan, the debtor is obligated to pay back the principle (i.e. the amount I originally lent) plus the interest accrued over the term of the loan. Should they pay back my original loan but are unable to pay the interest, the debt remains and the creditor, me in this case, is entitled to attach the debtor’s assets to recoup the outstanding balance.
Conversely, if I accept shares in the company in lieu of interest, I take on some of the risk. If the venture doesn’t work out and the company fails to make a profit, the original loan is still owed but I am entitled to nothing beyond that. In such cases, the creditor is likely to ask for a greater share in the company to compensate them for the additional risk. Would we consider that a type of stealth-interest or fair compensation for the risk?
Of course, there are ways to mitigate the amount of value a silent partner might be entitled to. For instance, you might offer the creditor shares in the company but offer the borrower an option allowing them to buy those shares back for a fixed value at some future date. In this instance, the creditor is forced to sell at the agreed price should the borrower exercise their option after the loan is repaid. That way, no matter how valuable the company becomes, the creditor’s share is capped at the agreed value. Some might even consider this a form of interest even though, technically, it is nothing of the sort.
There are no easy answers and no specific passages of scripture either endorsing or forbidding these types of business transactions. In such cases, we need to let our conscience guide us
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
You would do well to read this entire passage, Rom 14:1-23 in context. The main thrust of the passage is about eating food that believers considered to be unclean. This may have referred to food that was unclean in terms of Jewish law or it may have referred to meat that had been sacrificed to idols in the pagan temples.
Paul addresses this and points out that it is a matter of conscience for each individual. He urges believers to act according to their own conscience and not to judge others who choose to act differently based on their conscience. In the absence of a specific directive from scripture, the body had to let their conscience guide them.
The crux of his message comes in vs 14; if anyone believes something to be sinful, then for that person it is sinful… and if that person acts against their own conscience and engages in an activity that they believe to be sinful, then they have sinned. Conversely, another person might engage in exactly the same activity with a clear conscience and God will not hold them in contempt.
When it comes to loaning money at interest or or structuring your business deals with others, it comes down to a matter of conscience between you and God. As long as it is legal and does not contravene specific biblical teaching, let your conscience guide you.