Risks and Rewards of Employee Loan Programs

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There are now more companies than ever who have started offering allotment loans to their employees. There is a growing uncertainty in the economy, and most Americans are living paycheck to paycheck.

An employee loan program could be a great emergency option to offer the people who keep your business running. With that being said, there are some risks involved and you should consider the best system that works for your organization.

Here is a brief overview of the process, the risks associated, and the proven rewards that come with starting an allotment loan program for your employees.

The Process

It can be difficult navigating this territory for some businesses and requires some planning to start a successful employee loan program.

Essentially, your organization would have an extra workload concerning accounting and compliance with consumer credit laws. This would mean that your business would become a lender for your employees.

One way to offset this extra work would be to partner with a lending company with systems already in place, such as the LoansAtWork program.

Let’s take a look at some risks you could face by setting up an employee loan program yourself and the rewards for giving your employees this option.

The Risks

  • Should you choose not to outsource to a lending company, you have to make sure you are compliant with consumer credit laws
  • Depending on your workplace culture, offering this option may seem intrusive to some employees who are more private about their finances
  • An employee could exit the company before repayment so, you’ll have to create safeguards against loan default

The Rewards

  • Shows compassion for your employees, and that you care about their life outside of work
  • Gives your employees a much better option than predatory payday loans and allows for fixed payments automatically deducted from their paycheck
  • Increases the value of your organization for prospective employees and creates a sense of trust in upper management
  • Increases productivity as your employees will feel less stressed, more financially secure, and more loyal to the business
  • Creates a conversation around financial literacy with many programs available to your employees for free

Setting up an employee loan program requires a considerable amount of planning. It might be worth looking into working with an established lender to determine the best employee loan program for your business.

A company such as BMG Money Loans takes on all the administrative burdens of an allotment program at no cost. They even handle enrollment, eligibility, payroll deduction, and accounting with no risk to you.

You should assess the risks and rewards for your business personally and decide if an employee loan program is right for your organization.