A recent discussion with a broker he articulated that our client had a moral obligation to repay a debt. We questioned this in the context of who our client owed a duty to, and what was the morality that is expected with a loan.

Our client had borrowed money at over 12%, and we were in year 3 of a 5 year loan, the lender had received 100% of the original capital. Our client had placed their business into liquidation after 3 years of heavy losses.

So is there a moral obligation to repay a loan?

We ran through the hierarchy of who the client had an obligation to; the staff and contractors were without dispute, equally the client had taken all steps to pay the trade creditors and small business creditors but why was the financier given a moral expectation?

Did the financier charge interest on the loan? So the question was is the morality of the loan traded for an interest rate, had they given him the money with no interest this would be more realistic than a commercial lender who is in the business of lending money and charging a rate of interest in line with the risk that they are taking.

Whether a business owner has a moral obligation to pay must be balanced with their obligations to their other creditors, and where (in our case especially) a higher interest rate is charged, the lender has factored in risk as part of the loan. The broker arguing that the client had a moral obligation to pay has to balanced against all other considerations, including to themselves and their family.