Operations

The Bottom Line on Lending Money to Your Employees

LCT Staff
Posted on October 1, 2001

“If you want to keep a friend, never borrow, never lend.” — Benjamin Franklin

Franklin was a true Renaissance man, but he may not have survived as a modern business owner. A quick survey of 10 medium-sized limousine operators revealed that all of them have some active loans with their employees. Ranging from $20 to gas up their personal cars to $2,500 for a used car to drive to work, the employers that were surveyed said that lending money was a fact of their business lives. They said almost unanimously that the risk of lending money was easier to cope with than potentially losing good employees who needed an emergency loan.

Dinesh Ganganna, president of Deluxe Transportation in Burtonsville, Md., has spent the last nine years growing his company to 28 vehicles. He and his wife Mary realized early-on that their biggest challenge was hiring and maintaining a stable work force. “If you can keep a core group of employees loyal to you, then you have an opportunity to grow as a company,” Ganganna says.

One way that Deluxe Transportation has created this stability is by loaning money to its staff. There are currently about 10 active loans totaling around $5,000 with the current employees. The loans are for a variety of reasons. “There isn’t any one reason people need money,” Ganganna says. “It could be a car payment, child support, school tuition, closing costs on a house — I have heard everything.”

Although he is not thrilled about loaning money, Ganganna believes he has been rewarded with more than what the employee has received. “It sends a message to the employee that we care about them as people,” he explains. “I think it makes them more loyal to us and less likely to leave. Employees who have borrowed money are more likely to speak highly of Deluxe Transportation to our customers. I never forget that 95 percent of the time, we cannot observe our chauffeurs as they work. I feel good that when a customer asks them about their employer they will tell them that we are nice people to work with.”

Ganganna believes that there is a definite way to handle the mechanics of the loan. “We never make the employee feel bad about the loan,” he says. “You get much less of a benefit from the employee if you lend him money with your teeth clenched.” He also has found the typical employee is eager to repay the loan.

“We recently loaned a guy a thousand dollars for an emergency,” Ganganna explains. “He wanted to pay it back in three or four weeks, which I knew would have been a hardship. I told him to make it three months for repayment. We didn’t want to put him in the exact same predicament.”

Ganganna has even helped solve one of his employee’s most common dilemmas that required borrowing money. “I have one older car and one Town Car that is out of service that I maintain just to loan to our employees. They are not fancy, but I keep them running well and they are on our insurance policy. There really is zero public transportation available to our facility, so it is extremely important that all of our staff, from dispatcher to car wash, are able to get here. I know it is not the norm, but I believe it is a good thing for our company to do.”

Tom Lincoln, president of Austin Area Limousines in Austin, Texas, occasionally lends money to his employees much the way Ganganna does. But he extends himself to help his staff of 30-plus employees in a different way.

“We have a large fleet of vehicles (28), so we obviously have solid connections with auto repair facilities,” Lincoln says. “We have a great deal of repair and maintenance work done on our premises. We let our employees get repair and maintenance done on their personal cars on our premises. We pass the same discount we receive from our vendors on to our employees. We also allow our employees to pay for the work through a payroll deduction.”

Lincoln is reluctant to be in a situation where he is owed money from large numbers of employees. “I think we pay our people very well so we don’t seem to get a huge number of loan requests. We do it when we have to, especially for a loyal employee, but I tend to view it as a personal loan between myself and the employee rather than a business transaction.”

Eric Weiner, president of All Occasion Limousine in Providence, R.I., sees it the same way as Lincoln does. “I believe our employees are an extension of my family. I care about them and I want them to have the best life possible.”

Weiner has quietly helped a number of employees over the years. “This is a personal thing for me and I lend money personally to employees who need my help,” Weiner explains. “Do I get burned occasionally? Of course I do, but I can live with that possibility. I think that in this area, you have to base your decisions on what is the right thing to do. We always talk about how important it is to treat our staff as our most important customer. It is just obvious to me that when you take care of your staff, they tend to take care of your clients.”

The risk of not lending money to your chauffeurs is especially acute when dealing with clients. A Midwest operator related an embarrassing story. “I had a chauffeur who was forced to wait three hours at the airport for a flight,” the operator explains. “He called me in a panic because he was short of cash and could not pay the parking fees. I had to jump through hoops to get another driver to meet him and slip him some cash. I would much rather lend cash to my employees than get humiliated in front of customers. We have this huge investment in creating the image of a successful executive transportation company, and that image can be destroyed by a situation like that. I would be mortified if a chauffeur asked a VIP customer for money for parking. Our dispatcher makes sure every chauffeur has at least $35 in cash on his or her person, or they do not leave the garage.”

Richard Mulcahey, a Philadelphia-based attorney, says that employers must be particularly careful in these situations. “I would initially advise employers to..." ... for more information on this topic, see the October issue of LCT magazine.

LCT Staff LCT Staff
Comments ( 1 )
  • Bill

     | about 5 years ago

    One way to solve the issue of loaning employees money is to outsource the lending, but provide them with financial education through a finanical wellness program too. Check out www.finfit.com

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