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Home Finance

Is Offering Loans to Employees a Good idea for Organizations?

emma parker by emma parker
October 1, 2020
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The management in any organization is responsible for helping the employees in times of need. People need a workspace where the management understand their problems, be it physical, psychological, or financial. While the seniors readily provide physical and psychological support, financial support is still a matter of debate.

The employees must get through the channels that can take time to approve if no help is offered. Those with poor credit ratings pay unreasonable interest on loans. However, guaranteed payday loan from the direct lender for bad credit is readily available in the market. Some companies have started offering loans to their employees to save the latter’s time and money. But is it a good idea for organizations?

Benefits of Offering Employees

The pros of offering employees loans include:

Shows Employees You Care About Them:

When this kind of financial help is provided, the feeling of being cared for is felt by the employees. It is essential in the corporate sector since the workforce will be willing to work hard for the organization. Even the recruitment is benefited by it with potential employees who may think of you as more responsible management.

Increases Loyalty and Employee Retention:

Corporate values people working in their organization of years. They know the company from top to bottom, making them a valuable asset. Helping the workers during their financial crisis will move them towards loyalty. The faith you put in them while lending adds to the job satisfaction and retention. Thus, they are more likely to stay for years when you assist them.

Increases Focus on Work:

The financial instability can cause anxiety, lack of focus, and even depression for the employees. The result is low productivity and quality of work. When you offer them a loan, the stress is reduced on them – thus solving a few problems that may bring back the good performance. Also, the absence from work is reduced due to the problem.

Favourable Terms for the Borrower:

The lenders from the market will offer loans based on the credit score most of the times. The interest will be higher in case of text loans 24/7 loans. Offers such as Text loans often ends with extremely high cost. Employers can offer lower interest rates to the employees. The employee can also ask for some relaxation or payment holiday during repayment.

Easy Repayment:

In this arrangement, the installments can be deducted from the salary directly by the organization. Thus, repayment is more straightforward than other methods of loan. Also, the installment is agreed upon not to overwhelm the borrower.

Drawbacks of Offering Employees Loans

Here are some disadvantages of employee loans for an organization:

Legal Obligations

The paperwork that comes with the loan application isn’t the only problem. The company must learn and follow the legal requirements set by the governing authorities. This adds an added cost of operation. The company should also be aware of the tax implications to be managed. It depends on the administration of the loan and its term.

Higher Risk of Defaults

The company deducts the repayment amount from the salary of the employee. But what if the employee is terminated or leave the job? You cannot remove the whole amount from the paycheck. Therefore, the chances of defaults are higher in case of employee loans.

Potential Feeling of Resentment

If the loan amount offered to an employee doesn’t meet its expectation, there can be a feeling of resentment. The whole situation can further go downhill if the employee doesn’t meet the set of requirements. Also, there can be the accusation of discrimination based on the different amount offered. The company must stay consistent with their behaviour to avoid such accusations. They should make sure the employees have a clear understanding of the whole procedure to eliminate or reduce the feeling of resentment.

Increased Stress of Debt

The positive aspect of the employee loan you might have imagined can sometimes be the exact opposite. Instead of feeling relieved from stress, the added installments can be overwhelming for the employee. Their performance can take a severe hit at work with all the stress and anxiety. The risk of making the situation worse is there.

While it is true that the employee loan service comes with its complications, you cannot deny the positive impact of it. The growth of your business depends on the positive environment at the workspace. And you must do all in power to support your employees. For the employees, it is a better alternative to the services. In the end, it depends on the business’s financial situation and the efforts you can make for the employees.

Tags: Good IdeaGood Idea for Organisationslaon to emplyeesloan
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