Proverbs 22.26-27
Do not be one who shakes hands in pledge or puts up security[1] for debts; if you lack the means to pay, your very bed will be snatched from under you.[2]
In this saying, we’re instructed to avoid accepting the legal obligation to pay another’s debts on their behalf, should they default on the debt. In essence, we should not allow our assets or our good credit to become the backstop or collateral for another’s debts.
This prohibition against guaranteeing another’s debts appears seven times in Proverbs, first in 6.1-5
My son, if you have put up security for your neighbor, have given your pledge for a stranger, if you are snared in the words of your mouth, caught in the words of your mouth, then do this, my son, and save yourself, for you have come into the hand of your neighbor: go, hasten, and plead urgently with your neighbor. Give your eyes no sleep and your eyelids no slumber; save yourself like a gazelle from the hand of the hunter, like a bird from the hand of the fowler. [3]
This prohibition also appears in Proverbs 11.15, 17.18 and 20.16. The reasoning behind this prohibition is clear: if your assets cannot satisfy the debts, then the creditors will take even the most intimate of your assets, indicated in the phrase your very bed will be snatched from under you.
It seems to me that behind this prohibition is the recognition that you can’t control the behavior of the one who has benefited from the loan, so taking on the financial and legal risk for their actions is unwise. An apt illustration is a father who pledges his son’s debts so that the son can start his own business. I’ve seen this scenario too many times where the son was not successful in business and the father ended up losing most of his wealth to satisfy his son’s debts.
Pledging another’s debts is an excellent way to put your wealth which God has entrusted to you at risk for another’s actions. You assume the legal obligation to pay the creditors without commensurate control over the business activities intended to produce the cash to pay off the debts. If you’re going to take on the risk, then you should have proportionate control.
In addition, we can look at this principle in from the other side of the table: those seeking new funding for their businesses. Start-ups are notoriously risky for investors and lenders alike. Often, in order to obtain loans, the entrepreneurs and the banks both look for a third party to guarantee the loans. If you’re a Christian looking to start a business, it is best to find investors who will put money into the business in exchange for equity rather than asking someone to violate this Biblical instruction and pledge the debts of yourself or others.
The part under which you’ll chafe is giving up equity in order to attract investors. But this is how the game works. Often, entrepreneurs are faced with the decision to own 100% of nothing or own less than 50% of something. Many choose the former for a variety of reasons. Those that make this choice usually never succeed in building a business. In business, the dream is not enough. You need to be able to monetize your dream if you’re going to steward it well.
One other application of this instruction is in family business succession planning. Most family businesses do not remain intact as an independent firm owned by the family in the 2nd generation.[4] When there is excessive seller financing of the value of their shares to their children, they are, in essence, putting their own assets at risk to enable their children to purchase their own business from them. To my way of thinking, this is a type of pledging for another’s debts and violates this instruction.
Check Yourself
- Have you pledged the debts of another person?
What can you do to become released from being the security for these debts?
[1] “security”: בַּ֝עֹרְבִ֗ים from ערב, to take on a pledge, step in for, mortgage, stand surety. This same word is used in Proverbs 6.1, “if you have put up security for your neighbor”. Judah becomes the security for bringing Benjamin back to Israel in Genesis 43.9, “I myself will guarantee his safety; you can hold me personally responsible…” In Jeremiah 30.21, the word is used as a term of commitment to God, “I will bring him near and he will come close to me – for who is he who will devote himself to be close to me?”.
[2] NIV Proverbs 22.26–27
[3] ESV Proverbs 6.1–5
[4] A Critical Look at Survival Statistics. Robert Holton, May/June, 2016. Familybusinessmagazine.com
