Employees often go through problems or financial crunches from time to time and that is when they turn to their employer. Most employers, especially when they are small business owners, view their staff akin to family members and want to help out. However, there are certain issues to be addressed before an employer can lend money to an employee.

Practicalities

There might not be any right or wrong answer when someone seeks a loan. Your decision however should depend on certain facts as well as circumstances. Before you deice to offer loans to someone on the payroll there are certain questions that should be asked:

Other ways to help

For employers who do not want to become lenders there are other ways one can help out needy employees:

Formalize the terms

When you agree to lend to an employee ensure that you make the employee sign on a promissory note that states terms of how to repay the loan. The repayment terms should be spelled out on the note such as interest rate and frequency of payments as well as what happens if there is a default on the loan. Templates can be found online to create a promissory note that would be binding but it would be wise to get it done by a legal attorney.

You could be magnanimous in keeping the terms lenient and interest below on the market, but also remember that loan rules for businesses apply as per company taxation.

Conclusion

It would be great to help out your staff, but with the complexities involved, it is best that you say no as a policy to stem the requests from needy employees.

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