Businesses can create an employee loan program that will provide loans for workers who need extra cash to make a down payment for a home or their kids’ college tuition. No matter what the circumstances of the loan application are, employers are always in limbo whether it is right for them to offer this program. The straight answer is that loan programs help companies retain employees. Workers love to work for companies that value their contributions to the organizations by making these loans accessible.
However, that does not remove the fact that these loan programs are tricky. How do you evaluate the ability of an employee to repay the loan? What happens if one employee gets approval and the other one didn’t? Is this going to be an issue that will affect their productivity in the office? If an employee reneges on a loan, what’s your hold on them?
Create a Program With Very Specific Terms and Conditions
It is better to create a loan program right now—one with very specific terms—than provide an emergency loan that is not based on any agreement. With a program in place, your employees know what they can expect from the application to the approval to the repayment process. They know how their chances are going to be evaluated. They also have an idea of how much they will have to pay every month, as well as what happens when they have to leave the company.
Knowing the ins and outs of the loan program will leave everything clear. Transparency is going to be your ally in the success of the program. Without transparency in interest rates, approval process, and loan cancellation policies, you are leaving the doors wide open for a possible lawsuit.
Use a Third-party Service
How do you plan on evaluating your employees’ capacity to repay the loan? You can hire a credit management solutions company to do the risk management analysis for your business. These agencies usually look at the credit history of the employees. Proving the creditworthiness of the employee is one of the most important things that your business has to do before approving a loan. Remember, as much as you want to help your employees, it shouldn’t be at the expense of your business.
Build a Team That Will Handle the Loan Applications
This doesn’t have to be a separate team that you will pay regardless of whether there’s a loan application or none. The team handling the loan application can be representatives from different units in the office. There can be one from the finance and human resource department, another from the workers’ group, and another from the executive department. This team will be responsible for assessing the capacity of the application to pay for the loan. With the HR personnel there, the process will be more objective.
Value Loyalty, Tenure, and Reputation
Even a third-party service such as the one you will hire to look into your employees’ credit score can’t tell much about them compared to what you know. When it comes to your employees, you should be above everybody else. How many years have you spent with this particular worker? How much do you know about them? What do you think of them? What kind of reputation do they have in the office? For example, if the employees already have money problems with their co-workers, you should think twice about approving the loan application.
Find Out What They Need the Loan For
It’s one thing to need a loan for an emergency—school or health. It’s another thing to always apply for one because the employee overspent. You should set an interview with the applicants to find out which among them deserve to have their applications approved. For every batch of loan applications, you will only have enough budget to approve a handful. Make sure these approvals are well-deserved.
Ask for Referrals and Recommendations
Ask the applicants if you can interview a couple of their co-workers to vouch for their integrity when it comes to loans. Although you’d like to think you know your employees well, the truth is that their co-workers know them best. From their colleagues, you can get a clear picture of how they deal with financial problems, as well as if they have issues with borrowing money in the office.
Once you know all these details, you can make an informed choice about approving the loan. An employee loan program is always tricky, but it’s also an important benefit that will help retain skilled workers. The knowledge that they can depend on their employers during a financial emergency will make them want to stay with the organization. This alone warrants that you create an employee loan program that is fair and non-discriminatory.