What does ethical lending, and borrowing, look like? In practice… in the real world? Let me know what you think, people of the Much.

Ethical as a whole I define as ‘a scale, relating to the benefit to life’. Does an activity or process support life, or detract from life, does it enhance life or inhibit it? This definition can be applied to many things, entire industries, as well as lifestyle choices. It becomes more complicated when considering C2B ethics, where ‘Consumers’ (sorry, horrible term)  are lending to Businesses. On one hand, one of the parties involved are not alive, they are legal entities, and so ethics between them and individuals becomes almost non applicable. Or does it? Do businesses have feelings?

How about when one party is a construct, a Ltd company for example, and the other is an individual? Is there an asymmetry of ethical perception, from the offset? One party is a human, the other, not. How then to proceed? I would suggest several possible answers.

1. Personalise both sides. Pretend both are living.

2. Depersonalise both sides. Pretend neither are living.

3. Alternatively, we can accept the ethical position of one side may be based on different perceptions than that the other side.

In the instance of the client, option 3 seemed most appropriate.  

Ethical Borrowing from individuals by a limited company:

• Borrowed in good faith, that being with the intention to repay it on time at the agreed rate.
• Borrowing for the purposes stated in the application process.
• Truthfulness of information presented.
• Transparency of information as a whole.
• Disclosure of information, including that which may be detractive.
• Clarity. The proposition should be easily comprehensible.
• Understanding that the Lender has a duty of care towards the Borrower.
• Understanding the Borrower should act in the best interest of the Lender

I had the revelation that Ethical, in binary business scenarios, could be seen as doing what is best for the other party. If both parties do what is best for each other, they are most likely to create the optimal outcome. This is important. It equates Ethical to Successful, in application it requires that an ethical result is the most successful one possible. This makes ethics in business not an add on, but a core principal to drive optimised outcomes. Success.

Ethical Lending by individuals to a limited company:

This is interesting, because the lender is being asked to be ethical, ie life enhancing, towards a non living entity. It could be argued there is no ethical position here, in the context of what being ethical looks like. One may as well ask what being ethical towards a stone looks like. In order to move beyond that, we can consider the company to be ‘alive’ as long as it is trading. Therefor being ethical towards it can be considered to be doing what is in the best interests of the company. This will probably include it’s continued ‘life’, although there may be instances where continuation of life is not in the interest of the company. Specifically, where it is long term unviable.

So what does that look like in practice?

• Lending at a rate that the company will be able to afford.
• Having a clear and transparent process of repayment.
• Having the option for early repayment.
• Having a clear and transparent process for dealing with defaulting.
• Clarity. The proposition should be easily comprehensible.

If both parties do what is best for each other, they are most likely to create the optimal outcome.

Ultimately, providing the Borrower has been truthful in their application, both parties are on the same side, and want the same process and outcomes.

They want a loan to be made.

They want repayments to be made in accordance with the agreed schedule.

They want repayment to be made in full.

They want the option to repeat the process.

The issues arise when the borrower is unable or unwilling to adhere to the repayment schedule. This is when it can get messy and parties can become self interested. In order to minimise this, a very clear process for dealing with defaults should be clearly explained to both parties prior to agreement. If this is in place, and both parties agree to it, there should be no need to deviate from it.

If the lenders do agree to deviate from it, it should be for the benefit of the borrower. I.e. to continue its life. This will also benefit the lenders.

This completes my short answer to the question, ‘what do ethical borrowing and lending look like?’ It’s actually been bloody challenging.