How to Ask Your Boss for a Loan

It may surprise you to know that there are many employers across the country who offer loans to their employees. The loans can cover everything from personal expenses to more serious things, such as catching up on a mortgage or moving. The trend has grown over time due to the bad economy and the fact that many Americans are now living paycheck-to-paycheck in single income homes. According to the Department of Labor, the percentage of households with just one income grew to 7.8 percent, which is a 12 percent increase over last year. The Wall Street Journal reports:

Every year, business owner Jim Fab lends his 25 employees as much as $4,000 interest-free for personal expenses they can't afford up front, ranging from down payments on homes and cars to funeral and legal fees. Most pay him back – eventually.

"I had a guy send me $300 a month for three years after he quit," says Mr. Fab, whose electrical-contracting company, Fab Electric Inc., has been in operation in Gaithersburg, Md., since 1978.

At small, closely knit companies, business owners like Mr. Fab sometimes take on an extra role: that of the parent who opens up the wallet when the kids need cash. After all, they typically can't steer their penny-pinched workers toward the kind of resources that many big companies have, such as credit unions and debt-counseling programs. Instead, the only option they usually have is to dig into their own pockets – and many say they do with little hesitation.

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Offering loans to employees is a great way for small businesses to compete with large companies that have access to credit unions and specialized lending facilities. Giving loans can build trust with employees and may even be a good recruiting tool. Employees who are happy with their boss' lending program will tell their friends about their firm's generosity, which makes others want to work for the company. Loans are also a good way to boost employee morale by giving a benefit that is less expensive than others, like time off or dental insurance. Many employees who are struggling financially usually need something to help them get over a temporary hump. A tax-free, interest-free $1000 loan granted in an emergency might be more appreciated than a taxable $5,000 pay raise apportioned over the course of a year.

If you would like to ask your boss for a loan, you should approach the Human Resources Department or your immediate supervisor to see if there is such a program in place. If your company does not give loans to its employees, you may want to make a request that they consider doing so as an additional perk. Your firm might be receptive to your suggestion.

If you are a small business owner thinking about giving loans to your employees, first and foremost, be careful. Only lend an amount you can afford to lose. If the employee doesn't repay you, you must be extremely careful about deducting the loan payments from their paycheck. There are strict laws controlling how much employers can deduct from employees' pay, and you don't want to be in violation. Secondly, you should be consistent about how you give out loans and who receives them. If one employee is given support while another is not provided with the same opportunities, there could be resentment in the workplace. Last, but not least, you should put a limit on giving. Some employees may have consistent financial troubles and keep coming back to you every other month. You should put an annual cap on the amount of money that an employee can borrow, so that you are not inundated with requests.

All in all, loaning money to employees can help your business. You may want to give it some consideration. If you are an employee, you should find a way to make sure you save so you don't rely on loans in order to get by. But in the rare case that you are strapped for cash, going to your employer is a viable option worth looking into.

Lawrence Watkins is the Founder of Great Black Speakers. He is also the owner of speakers' bureaus dedicated to Hispanic speakers and Christian motivational speakers. His book, "Frame Your Future: 8 Principles to Effectively Focus on the Future and Not Dwell in the Past", will be released in August 2010. If you would like Lawrence's articles delivered directly to your email, please click here.