Lending Money to Employees -- a Good Thing?

The Inc.com blog Boss School throws out an interesting thought on lending your employees money. In the December 18, 2007 post entitled "This Company is not a Bank -- Or Is It?" the author suggests that it is good employee relations for the boss to lend valued employees emergency money. His example is one of an hourly employee driver who gets in trouble with the DMV. He lends the driver $5,200 to pay off the fines.

Where would this behavior fall under the concept of best-practices HR? Further, if this is a good practice, how does it fit (where, for who, in what situation, etc.)?

Under the broadest definition of employee rewards for continuing performance, we find:
-- monetary compensation, or wages and bonuses (current or near current)
-- risk based compensation, or options, phantom stock (equity or near equity schemes)
-- retirement benefit plans, like 401Ks, defined benefit plans
-- health plans, including doctor, hospital, and dental coverage
-- other benefits (vacation, group life and disability insurance, education assistance, etc.)
source: The Employee Benefit Research Institute.

I'm going to say that since the lending CEO or CFO makes an employee loan with the full intention to get back the money, and get it back promptly at that, then this is an "other benefit", akin to subsidizing a mortgage or MBA. As such it's a fourth or fifth level offering, crucial to certain employees, meaningless to others. The likeliest users would be hourly employees, and younger ones who have fewer resources amassed.

Would lending your employees money fall under a must-have offering? Certainly, especially in a small business where you have an employee base with above characteristics. I wouldn't consider it a higher target than offering group health care or some variation thereof, but many workers might value this benefit more than a 401K - where the dollars seem way far off. Afterall, you value, know, and trust these folks, why not help in a pinch?

Good reason to hold a wad of hundys in the back pocket or secret drawer, yes indeed.

The Fight for Immigration Reform

Thinking about the differences between big business and small businesses on the immigration issue (the latter against and the former for "amnesty"), it comes down to naked economic self interest. An examination of their membership and the economic position relating to immigration tell the story.

While the size of the immigration issue is really tied to the 12 million or so estimated contributing illegal workers, it would seem that all businesses need or are currently using these workers. But that view would be wrong, according to the NSBA (National Small Business Association). A 2007 survey of members revealed that a lack of qualified workers polled at 23%, or the 6th highest concern on the challenges measure, behind taxes and health care reform among others. Why is this issue of qualified workers so low?? Partly because small businesses hire immigrants at a much lower rate than their larger competitors. One measure comes from the NFIB (National Federation of Independent Business) in it's 2006 Member survey on Immigration. One finding was that a mere, "Seven percent of NFIB members have hired one or more guest workers within the last two years." The resultant positions by the NSBA and NFIB on immigration emphasize rational changes that don't impose additional expense on employers. Considerations of amnesty are discouraged.

On the contrary, if small businesses aren't hiring these folks, then it must be that large businesses are the ones. And as the economist community would say, these folks may be taking a small percentage of American jobs at the very low end, but on the whole they are contributing greatly to the American economy. Because the large business community needs these workers and needs them to stay, the US Chamber of Commerce supports immigration reform including, "...providing a way to earn legal status for undocumented workers who have been supporting our economy for the last decade or more." Notice no mention of amnesty, but that's what it would be.

Educated Professions Make the Most Profitable Businesses

It should come as no surprise that the most profitable small businesses include professional services firms including Accountants, Dentists, and Legal services. So says Maureen Farrell @ Forbes.com in a January 18 article entitled "The Most and Least Profitable Businesses to Start" (look for the article at lower left). Also high on the profitability list, Specialized Health services, Industrial and Graphic designers, and Insurance Brokers. These high performers were drawn from a list of 100,000 private business, most with less than $10 million of revenue per year. The pre-tax profit margins within this group ranged from a high of 25% to a low of 13%.

The worst performing businesses included commodity providers like bakeries, beverage manufacturers, and hotels. Their margins ranged from a low of -7.2% to 0.12%.

Economies of scale do come into play, that is covering overhead becomes easier once revenues clear the $3 million level, and further still over $10 million.

Interestingly, she writes that the profitability characteristics of these business groups tend to hold throughout the globe. Ergo education is the key to higher profitability. It makes for some deep strategic thinking when investing your time and money in a new or existing business, as bankers and CFO's can well attest.