Offering Interest-Free Employee Loans: How to Draft a Solid Repayment Agreement?

Hi all,

We are a small real estate firm. Some of our employees want personal loans. So, we thought of providing them interest-free loans. Can someone help with how I can proceed with the same? I want a loan agreement that can emphasize on the repayment.

Any help will be appreciated.

Hi,

I am enclosing herewith the Loan Policy with Form. This may be helpful to you.

Thank you.

Satya
Hyderabad

Hi Satya,

Thank you for the templates. One last thing I need help with is the Loan Agreement regarding repayment. I believe the deduction cannot exceed 40% of the salary. Could you please assist with the Loan Repayment Agreement?

Thank you.

Hi,

The repayment options are also addressed in the same loan policy. The repayment can be in equal monthly installments depending on the employee's capability of repaying the loan. As per policy, if the repayment options are 6, 12, or 24 months, the amount should be divided accordingly.

Hope I addressed your concern.

Thank you,
Satya

We do have a similar policy related to loans. We have the attached agreement signed by the applicant once the loan gets approved. Please see if it is useful to you.

Regards,
Shilpi

I would like to know if the company's loan policy is applicable for the consultants working at sites who are on our payroll.

Bhavana

I am in the process of creating policies for various loans for our employees. Please provide me with the format of the policy and the rules and regulations for giving loans to employees.

Naina

Hi Satya,

Thank you so much for the template of the loan policy and form; this is what I was looking for :) Also, if you can help me with the government policy/rules regarding the policy of employee beneficiary loans.

Thanks,
Vanita

Hi Everybody, I am Raviraj Ghadge, and I work with a small partnership firm. I am very glad to be one of the members where we get all the solutions for our queries, which helps us a lot.

Loan Recovery Concerns

Now, I have one doubt: if I provide a personal loan to one of my staff and complete the paperwork required for the loan, but the employee leaves the organization without any intimation, what action can I take to recover the loan amount? What documents should I take from that staff for the loan application? Please help me out with this.

Regards,
Raviraj G.

Your intention is to provide interest-free personal loans to employees. However, please remember that you need to include the interest on the loan amount as declared by SBI as taxable income and deduct TDS appropriately.

Trust the matter is clear.

Regards,
M.V. Kannan

Dear Raviraj, We faced problems when employees availed personal loans from financial institutions. When the financial institutions approached us to discuss their proposal, we made it clear that the company will only recover the loan amount to the extent of the employee's salary. However, if for any reason the employee does not earn a salary, the company will not make an upfront payment for the loan amount and will recover it later from the employee.

Similarly, if the employee leaves the organization, the company will only send an intimation to the financial institution to this effect, and the company will not be liable for recovering the balance loan amount from the employee's full and final settlement. Initially, these institutions refused to accept our conditions, but we were firm, and finally, a letter to this effect was signed by me and handed over to the financial institution, with the duplicate acknowledged by them. Subsequently, when the salary fell short of the EMI or when the employee left, we merely wrote a letter to the financial institution for recovering the amount.

Regarding Maheswari's query, you cannot recover any dues from the Gratuity amount, and dues to the extent of salary, leave encashment, LTA, and Medical reimbursement expenses alone can be recovered.

Never entertain personal loans from the company as this will be difficult for you to defend your case when the employee leaves the organization. It is also advisable not to recommend any personal loan amount employeewise statement to any financial institution as this will be a document binding on the company.

Regards, M.V.KANNAN

If an employee is taking a personal loan from their employer, what documents are needed and what precautions should be taken for repayment?

Thanks in advance