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The Danger of Debt in Business - Episode 16 · Profit and Principle

• 0:00
  SPEAKER_00: Here's a sentence that you probably heard in some form from a banker, an investor, or a business school professor.
• 0:08
  SPEAKER_00: Debt is just a tool.
• 0:11
  SPEAKER_00: Use it wisely and it builds your business.
• 0:14
  SPEAKER_00: The problem with that sentence, it's not that it's false, it's that it's only half true.
• 0:20
  SPEAKER_00: And the half it leaves out is the half that destroyed more businesses than any other single factor.
• 0:28
  SPEAKER_00: Debt is a tool the way a loaded gun is a tool.
• 0:32
  SPEAKER_00: Yes, there are legitimate uses, and in the right hands, it does what you intend.
• 0:37
  SPEAKER_00: But it concentrates risk.
• 0:40
  SPEAKER_00: It narrows your options in ways that you don't fully feel until you need those options.
• 0:46
  SPEAKER_00: It creates obligations that don't pause when your revenue does.
• 0:50
  SPEAKER_00: And when things go wrong, which in business they eventually do, for everyone, the business with significant debt has far less room to recover than the business without it.
• 1:02
  SPEAKER_00: I want to be clear about something before we get into Scripture.
• 1:06
  SPEAKER_00: I am not making the case that debt is always wrong.
• 1:09
  SPEAKER_00: The Bible doesn't make that case, and I'm not going to make it either.
• 1:13
  SPEAKER_00: There are legitimate uses of borrowed capital, and a categorical prohibition on business borrowing would be both impractical and unbiblical.
• 1:24
  SPEAKER_00: What I am making the case for, and what Scripture makes the case for very clearly, is that debt carries a weight that most business leaders dramatically underestimate, and that weight has a name.
• 1:38
  SPEAKER_00: Scripture calls it servitude.
• 1:41
  SPEAKER_00: I'm Daryl, this is Profit and Principle.
• 1:44
  SPEAKER_00: Three passages today, one from Proverbs, one from Paul, one from the book of Deuteronomy that almost nobody applies to business finances but should.
• 1:55
  SPEAKER_00: And two practices for thinking about debt in your own business this week with the seriousness it deserves.
• 2:02
  SPEAKER_00: So why does this matter in business?
• 2:05
  SPEAKER_00: Let me describe what over-leveraging actually looks like in a business.
• 2:10
  SPEAKER_00: Not in bankruptcy filing, not in the dramatic collapse, but in the day-to-day texture of how it changes the way you lead.
• 2:19
  SPEAKER_00: The first thing debt does is narrow your decision space.
• 2:24
  SPEAKER_00: The business owner who carries significant debt obligations cannot make the same decisions as the business owner who doesn't.
• 2:31
  SPEAKER_00: When a key employee needs a compensation adjustment to stay, the heavily indebted owner may not be able to respond.
• 2:39
  SPEAKER_00: When a strategic opportunity appears that requires capital, the heavily indebted owner may not have access to it.
• 2:47
  SPEAKER_00: When a difficult client relationship needs to be ended because it's costing more than it's producing, the heavily indebted owner may not be able to afford to walk away.
• 2:57
  SPEAKER_00: Debt doesn't just constrain your finances, it constrains your judgment because every decision gets filtered through the question of whether you can afford it rather than whether it's right.
• 3:10
  SPEAKER_00: The second thing debt does is transfer power.
• 3:14
  SPEAKER_00: This is the part of Proverbs 22.7 that we'll get into in a moment.
• 3:19
  SPEAKER_00: And it's the most important thing to understand.
• 3:22
  SPEAKER_00: When you borrow, you create a relationship with your lender that is structurally not equal.
• 3:29
  SPEAKER_00: Your lender has claims on your assets, your cash flow, and in some cases, your personal finances that you do not have on theirs.
• 3:37
  SPEAKER_00: They have covenants you must maintain.
• 3:40
  SPEAKER_00: They have remedies they can exercise if you don't.
• 3:43
  SPEAKER_00: The decision to borrow is a decision to introduce a party into your business who has significant power over it.
• 3:51
  SPEAKER_00: And that party's interests are not always aligned with yours.
• 3:55
  SPEAKER_00: The third thing debt does is concentrate risk.
• 3:58
  SPEAKER_00: Every business operates in uncertainty.
• 4:01
  SPEAKER_00: Revenue can fall, clients can leave, markets can shift.
• 4:06
  SPEAKER_00: The business that carries substantial fixed debt obligations has converted variable uncertainty into fixed exposure.
• 4:14
  SPEAKER_00: The debt payment is due regardless of whether revenue arrives.
• 4:18
  SPEAKER_00: The same business disruption that a debt-free company weathers as a difficult quarter becomes for a heavily leveraged company, a potential existential event.
• 4:30
  SPEAKER_00: Debt doesn't change the probability of something going wrong, it changes what happens to your business when it does.
• 4:39
  SPEAKER_00: None of this means borrow nothing.
• 4:41
  SPEAKER_00: It means borrow with your eyes fully open to what you're taking on, and most leaders don't.
• 4:49
  SPEAKER_00: So what does scripture say about this?
• 4:51
  SPEAKER_00: Let's begin, let's return to Proverbs 22, 7.
• 4:56
  SPEAKER_00: And it says this, the rich rules over the poor, and the borrower is slave to the lender.
• 5:03
  SPEAKER_00: This is one of the most economically precise statements in all of Proverbs, and it names something that is functionally, operationally true in every creditor relationship.
• 5:15
  SPEAKER_00: The borrower is slave to the lender.
• 5:18
  SPEAKER_00: The word translated slave is the same word used throughout the Old Testament for the servant, the one whose activity is directed by another's will.
• 5:30
  SPEAKER_00: When Solomon uses this word to describe the borrower's relationship to the lender, he's not being hyperbolic.
• 5:37
  SPEAKER_00: He's being accurate.
• 5:39
  SPEAKER_00: The borrower's financial decisions, business decisions, and sometimes personal decisions are constrained by the claims of the one who holds their debt.
• 5:50
  SPEAKER_00: They cannot sell certain assets without permission.
• 5:53
  SPEAKER_00: They cannot take on additional obligations without disclosure.
• 5:57
  SPEAKER_00: They cannot restructure their operations without the lender's awareness and sometimes approval.
• 6:03
  SPEAKER_00: This is a form of directed activity.
• 6:07
  SPEAKER_00: This is what it means to be a slave.
• 6:11
  SPEAKER_00: This doesn't mean that borrowing is always wrong.
• 6:14
  SPEAKER_00: The Old Testament law makes provision for lending and borrowing.
• 6:18
  SPEAKER_00: But it does mean that the transaction always carries the weight.
• 6:22
  SPEAKER_00: You are entering into a relationship in which the other party has structural authority over aspects of your financial life.
• 6:30
  SPEAKER_00: The business leader who takes on debt without fully reckoning with that dynamic has borrowed money and handed away something they may not have intended to give, a portion of their freedom to act.
• 6:44
  SPEAKER_00: For the steward who is managing someone else's resources, that's a significant consideration.
• 6:50
  SPEAKER_00: The question before borrowing is not just can I afford this?
• 6:55
  SPEAKER_00: The question is, is it faithful stewardship to introduce this level of obligation and this degree of lender authority into the management of what I've been entrusted with?
• 7:08
  SPEAKER_00: That's a great question.
• 7:10
  SPEAKER_00: Next, let's turn to Romans chapter 13, verse 8.
• 7:14
  SPEAKER_00: And Paul writes this, Owe no one anything except to love each other, for the one who loves another has fulfilled the law.
• 7:25
  SPEAKER_00: This passage has generated more debate than almost any other in Scripture when applied to financial questions.
• 7:32
  SPEAKER_00: Does Paul mean that Christians should never borrow?
• 7:35
  SPEAKER_00: Is this a categorical prohibition on debt?
• 7:39
  SPEAKER_00: The honest answer is probably not in the sense of a universal law.
• 7:45
  SPEAKER_00: The Greek verb here is from the command form of to owe.
• 7:51
  SPEAKER_00: It's better understood in its context as an ongoing posture rather than a one-time prohibition.
• 7:59
  SPEAKER_00: Paul is writing about the Christians' relationship to governing authorities and to one another more broadly.
• 8:07
  SPEAKER_00: The principle he articulates is a posture of clearing accounts, of not allowing ongoing financial obligation to define or constrain your relationships.
• 8:18
  SPEAKER_00: Pay what you owe, don't leave things unsettled.
• 8:22
  SPEAKER_00: The exception he names, the one ongoing debt that can never be fully repaid, is love.
• 8:29
  SPEAKER_00: For the business leader, what this passage establishes is a direct principle.
• 8:35
  SPEAKER_00: The goal is to owe as little as possible, as briefly as possible, and to treat debt as a burden to be discharged rather than a tool to be accumulated.
• 8:46
  SPEAKER_00: The posture is toward freedom from obligation, not toward leverage.
• 8:52
  SPEAKER_00: The business owner who carries debt as a permanent operating strategy and thinks of it simply as a cost of doing business has adopted a posture that moves in exactly the opposite direction from what Paul describes.
• 9:06
  SPEAKER_00: The aspiration is to owe no one anything except the ongoing debt of love.
• 9:12
  SPEAKER_00: That's a high standard.
• 9:14
  SPEAKER_00: It doesn't make all borrowing sinful, but it does make accumulating debt for its own sake, treating leverage as a virtue rather than a necessary concession, spiritually and practically misaligned with what Paul is calling us toward.
• 9:31
  SPEAKER_00: Let's now take a look at Deuteronomy twenty eight, verse twelve.
• 9:35
  SPEAKER_00: And it says this the Lord will open to you his good treasury, the heavens to give the reign to your land in its season, and to bless all the work of your hands, and you shall lend to many nations, but you shall not borrow.
• 9:52
  SPEAKER_00: The passage comes from the covenant blessings and curses of Deuteronomy.
• 9:56
  SPEAKER_00: Moses is laying this out before Israel, the consequences of faithfulness and unfaithfulness to God.
• 10:03
  SPEAKER_00: And here, tucked inside the list of blessings that comes with covenant faithfulness, is this you will lend to many nations, but you will not borrow.
• 10:14
  SPEAKER_00: This is worth sitting with.
• 11:07
  SPEAKER_00: The aspiration for the business that is being faithfully managed is not to maximize leverage.
• 11:13
  SPEAKER_00: It's to build toward a position of such stability and strength that it can be a lender, the giver, the source of blessing to others.
• 11:23
  SPEAKER_00: That's a long-term vision.
• 11:25
  SPEAKER_00: And not every business is there yet.
• 11:28
  SPEAKER_00: But it's worth knowing where the target is, because the target shapes every decision you make on the way to it.
• 11:36
  SPEAKER_00: If the goal is financial freedom rather than financial leverage, your relationship to debt changes.
• 11:43
  SPEAKER_00: Every payment toward principle becomes a step toward that picture.
• 11:48
  SPEAKER_00: Every new obligation taken on becomes a step away from it.
• 11:54
  SPEAKER_00: Let me give you a concrete picture of what the servitude of debt looks like in real time.
• 12:01
  SPEAKER_00: Not in a collapse, but in the slow constriction that precedes one.
• 12:06
  SPEAKER_00: A manufacturing business owner named Thomas built his company over eight years using debt aggressively.
• 12:14
  SPEAKER_00: It was a conventional growth strategy, borrowed to buy equipment, borrow to fund inventory, borrowed to take on contracts that required upfront capital.
• 12:24
  SPEAKER_00: At the peak, his revenue was strong, his growth rate was impressive, and his debt load was substantial but serviceable.
• 12:33
  SPEAKER_00: He had three different lenders with different terms and covenant requirements, and managing those relationships had become a part-time job in itself.
• 12:43
  SPEAKER_00: Then a major client, representing about a quarter of his revenue, went through their own financial difficulty and slowed payments to 90 days.
• 12:52
  SPEAKER_00: Thomas's cash position tightened immediately.
• 12:56
  SPEAKER_00: He needed a short-term bridge.
• 12:58
  SPEAKER_00: He went to his lenders.
• 13:00
  SPEAKER_00: Two of them discovered in the process that he had been out of compliance with a debt covenant for the previous quarter, a technical violation he hadn't noticed.
• 13:11
  SPEAKER_00: One of them called the loan.
• 13:13
  SPEAKER_00: Thomas hadn't done anything wrong.
• 13:16
  SPEAKER_00: He had built something real.
• 13:18
  SPEAKER_00: He had served his clients well, but he had borrowed heavily and handed portions of his decision-making authority to three different parties whose interests at the moment of stress were not aligned with his survival.
• 13:33
  SPEAKER_00: The borrower, Proverbs says, is a slave of the lender.
• 13:38
  SPEAKER_00: Thomas found out exactly what that meant.
• 13:41
  SPEAKER_00: He spent the next 18 months restructuring at a significant personal and financial cost.
• 13:48
  SPEAKER_00: A situation that a less leveraged version of the same business would have navigated as a difficult quarter.
• 13:55
  SPEAKER_00: The business survived, but the lesson was written into him permanently.
• 14:00
  SPEAKER_00: The cost of debt is not just the interest rate.
• 14:04
  SPEAKER_00: The cost of debt is what you hand someone else when you sign.
• 14:09
  SPEAKER_00: How do we apply this?
• 14:11
  SPEAKER_00: Well, I have two practices for you this week.
• 14:14
  SPEAKER_00: One is diagnostic and one is directional.
• 14:18
  SPEAKER_00: So the first one is this do a full accounting of what your debt is actually costing you.
• 14:25
  SPEAKER_00: Most business owners know their interest payment.
• 14:28
  SPEAKER_00: Fewer know the full cost of their debt position.
• 14:32
  SPEAKER_00: And I'm not talking about the financial cost.
• 14:35
  SPEAKER_00: This week, sit down and answer three questions about every significant debt obligation your business carries.
• 14:42
  SPEAKER_00: So first, what are the covenant requirements and are you currently in compliance?
• 14:48
  SPEAKER_00: Lenders build conditions into loan agreements that are not always front of mind in day-to-day operations.
• 14:56
  SPEAKER_00: If you're carrying significant debt and you haven't reviewed your covenant compliance recently, do it now.
• 15:03
  SPEAKER_00: Thomas's story is not uncommon.
• 15:07
  SPEAKER_00: Second, what decisions does this debt prevent you from making freely?
• 15:13
  SPEAKER_00: Think through the last six months.
• 15:15
  SPEAKER_00: Were there hires, investments, or strategic moves you wanted to make that the debt made that impractical?
• 15:24
  SPEAKER_00: That narrowing of decision space is a real cost, and I want you to name it.
• 15:30
  SPEAKER_00: Third, what does your lender's covenants require of you that you would not do otherwise?
• 15:36
  SPEAKER_00: That's the clearest measure of servitude.
• 15:39
  SPEAKER_00: The things that you are doing or not doing, because of your lender's requirements, those are the slave relationships made visible.
• 15:50
  SPEAKER_00: Know what you've handed to them, because that knowledge will change how you think about the next time you're offered more.
• 15:58
  SPEAKER_00: And here's step two: set a directional goal toward financial freedom and make one move toward it this week.
• 16:06
  SPEAKER_00: Deuteronomy 28, 12 gives you the target, the lender, not the borrower.
• 16:13
  SPEAKER_00: A business in a position of surplus and freedom is not obligated and constrained.
• 16:20
  SPEAKER_00: You may not be there.
• 16:22
  SPEAKER_00: Most businesses aren't, but the question is whether you're moving toward it or away from it.
• 16:29
  SPEAKER_00: This week, identify one concrete move toward that direction.
• 16:33
  SPEAKER_00: It might be committing to an accelerated principal payment on one loan.
• 16:38
  SPEAKER_00: It might be declining a credit facility you've been offered because you don't actually need it.
• 16:44
  SPEAKER_00: It might be restructuring a line of credit to reduce the ongoing obligation.
• 16:49
  SPEAKER_00: It might simply be a decision to stop treating leverage as a default growth strategy and starting to treat it as a concession, something taken on reluctantly, discharged as quickly as possible.
• 17:03
  SPEAKER_00: The posture Paul describes in Romans 13 is directional.
• 17:07
  SPEAKER_00: Owe no one anything.
• 17:09
  SPEAKER_00: You may not achieve that this week, but you can take one step toward it.
• 17:14
  SPEAKER_00: And the discipline of moving consistently in that direction, of treating debt as something to be discharged rather than accumulated, is what builds the kind of financial freedom that Deuteronomy describes as a picture of blessing.
• 17:29
  SPEAKER_00: Just one move this week.
• 17:32
  SPEAKER_00: Let me close with something I want to say directly to the leader who is listening to this episode and is already carrying significant debt.
• 17:40
  SPEAKER_00: This episode comes not as a condemnation of the decisions that got you there.
• 17:46
  SPEAKER_00: Most debt in business doesn't come from recklessness.
• 17:49
  SPEAKER_00: It comes from courage, from the willingness to bet on something you built, to take on risk in service of a vision, to move forward when the outcome wasn't guaranteed.
• 18:00
  SPEAKER_00: That courage is not nothing.
• 18:03
  SPEAKER_00: God sees it.
• 18:04
  SPEAKER_00: What this episode is asking you to do is to see your current position clearly, to know what you've handed your lenders, to understand what it's costing you beyond the interest rate, and to set your face toward the direction of freedom, not with guilt over where you are, with clarity about where you want to go.
• 18:25
  SPEAKER_00: The God who describes his blessing as a people who lend and don't borrow is the same God who walks with his people through the seasons when they're in the opposite position.
• 18:36
  SPEAKER_00: He doesn't abandon the leverage leader.
• 18:39
  SPEAKER_00: He walks with them toward the exit.
• 18:42
  SPEAKER_00: And the exit starts with the honest accounting.
• 18:45
  SPEAKER_00: Let me pray for you.
• 18:48
  SPEAKER_00: Father, I pray for every business leader listening right now who is carrying the weight of debt obligations, who knows the pressure of payments due and covenants to maintain and options they have narrowed because of what they owe.
• 19:04
  SPEAKER_00: Give them the wisdom to see their position clearly and without shame.
• 19:08
  SPEAKER_00: Give them the discipline to move consistently toward freedom, one decision at a time.
• 19:15
  SPEAKER_00: Protect them from taking on more than they can bear in service of growth that feels urgent but isn't.
• 19:21
  SPEAKER_00: And give them a long-term view.
• 19:24
  SPEAKER_00: The picture from Deuteronomy of a business so stable and strong that it can be a source of blessing to others rather than a dependent on their grace.
• 19:33
  SPEAKER_00: Let that be the goal they're building toward.
• 19:36
  SPEAKER_00: In Jesus' name, amen.
• 19:39
  SPEAKER_00: Well, thank you for joining us again today for this episode of Profit and Principle.
• 19:43
  SPEAKER_00: If you haven't done so already, I would greatly appreciate if you go to wherever you listen to this podcast and leave us a rating and review.
• 19:50
  SPEAKER_00: That way it'll help others get a hold of the podcast as well.
• 19:54
  SPEAKER_00: Also, you can go to our website, profitandprinciple.com, and on there you will find several different resources.
• 20:01
  SPEAKER_00: Number one, you can sign up for our weekly newsletter.
• 20:03
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• 20:06
  SPEAKER_00: You can also take a look at a downloadable PDF document that we have there.
• 20:12
  SPEAKER_00: You can use this in a group study or a further study on your own of this week's content.
• 20:17
  SPEAKER_00: And then finally, you can read our blog article, which goes into even more detail about these particular passages and how to apply them in your business.
• 20:26
  SPEAKER_00: So thank you for doing those things.
• 20:27
  SPEAKER_00: May God bless you, and hope you'll be back with us next week.