Offering employees a small lending program can help them prevent or handle a small emergency without falling into crisis and to build credit as they repay the loan. As an employer, having employees who are less stressed about finances allows them to be present in their work and encouraged to stay with the organization longer-term.
This first blog post offers four reasons why employers should offer a small lending program. In this second blog post, we highlight how Oakridge Neighborhood partnered with the Financial Empowerment Center through the Director’s Council to develop a small-lending model. Teree Caldwell-Johnson, president and CEO of Oakridge and chair of the Director’s Council, and Deidre DeJear, who runs the Financial Empowerment Center, shared one way a small lending program can work.
How it works
While Oakridge has provided small lending programs in different forms for several years, its most recent model provided a loan pool of $10,000. An employee who worked at Oakridge for at least a year could request a loan of up to $500 for the first loan and $1,000 or $1,500 in subsequent requests. The loans were available until funds ran out for the year. The employee then paid off their loan over six months through a monthly payroll deduction from their paycheck. Once a loan was repaid, the same amount of money continued to be deducted from the employee’s paycheck and placed into a savings account for six months to build wealth they could then access at the end of the program.
Those who requested a loan were connected to a financial coach who walked through a spending plan and helped the employee determine how much of a loan they could afford to pay back and how to begin to save through the program. Employees then filled out a short application without a credit check and were connected to the financial institution that managed the loan process. Most individuals received their loan within 48 hours.
For the Employer:
Oakridge covered the surety of $1,000 to handle any loan defaults, which never occurred. It also had to agree to set up automatic payroll deduction for employees to repay the loans. Beyond those steps, the financial institution and the Financial Empowerment Center managed the loan process and financial coaching.
Use of the program
More than half of Oakridge’s employees have used the program over 18 months and about one-third of those employees took out second loans.
The Director's Council also began to offer this program community-wide in early 2020. It processed about 40 loans before pausing the rollout as the pandemic hit. While the program is still available to employers and employees, the Director’s Council hasn’t wanted to expand too quickly to make sure employees will be able to stay at an organization longer term.
Deidre compares the lending program as a bridge between a pay day lender and a conventional institution. The application is simpler and does not require a credit check, unlike a financial institution would require. The interest rate is significantly less (10%) than what a pay day lender would charge as well. Working with credit unions often allows for more flexibility with the application process.
View Wealth-Building Strategies
The Central Iowa Works' guide on Wealth-Building Strategies can help you consider other options for supporting employees' financial well-being.