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When Your Employees Need a Loan

I love small-dollar loans. I think they are one of the best supports to help stabilize employees.

These employee loans are usually given through a bank or credit union. It is the responsibility of the business and human resource department to set up a payroll deduction for the loan with the financial institution. The loan, in a fixed amount of usually $750–1,000, is usually paid off in one year with a deduction from each paycheck. The bank or financial institution takes the risk for loan default. Surprisingly, the default rate is very low.

Another cool aspect about a small-dollar loan is that typically with each loan, two additional things happen: The employee takes some form of financial literacy class, and a $20 deposit or more is made into a savings account each time a payment is made on the loan. The employee can’t use the money in the savings account until the loan is paid off. At that point, the employee may forget they have that savings account. Twenty dollars continues to be deposited from each paycheck into the savings account until the employee asks for it to stop. For many entry-level, lower-wage employees, this is the first time they’ve had a savings account.

For many employers offering small-dollar loans, the benefit starts after six months of employment. Employers also take into consideration whether an employee is full-time or part-time. Listen to this webinar about an employer-sponsored small-dollar loan program to see what other criteria and benefits employers have when starting such a loan program.

“Helping employees solve problems in their personal lives allows them to bring their best selves to work every day.” 

Lorri Miller, human resources manager, Rhino Foods, Burlington, Vt. Feasibility Study Report, Employer-Sponsored Small-Dollar Loan, Filene Institute

These small-dollar loans given by credit unions and banks are affordable and are unlike the payday loans that prey on and abuse borrowers. The interest makes it next to impossible to ever pay off a payday loan. Watch this video to see the difference between a payday loan and an employer-sponsored small-dollar loan.

Small-dollar loans provide support to employees in a way that is fast and convenient, while also keeping the employee at work to get product out the door, answer phones, and keep the business processes humming. As an added bonus, small-dollar loans continue to improve the credit scores of employee borrowers, unlike payday loans.

As you can tell, I’m a huge fan of small-dollar loans. Check them out, and see how they can serve your employees with increased stability. There is compelling evidence that small-dollar loans can make a big difference in the lives of your employees who have limited access to credit and resources.

About the Author: Ruth K. Weirich, MBA, is an author, trainer, and management professional experienced in business operations efficiency and profitability. She is also a past president of aha! Process, an education and training company specializing in economic class issues. Contact:


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