Startup offers alternative to 401(k), payday loans

Most employers provide some form of wellness programs to benefit their employees and give them the tools to enjoy healthier and more productive lives both at work and at home. However, the same cannot necessarily be said for financial wellness. Companies provide retirement plans and perhaps financial advice/education, but how much is really being offered to employees in terms of financial wellness?

Overall lack of monetary funds to cover personal expenses was cited as the most common personal financial challenge facing employees, according to a Society for Human Resources Management survey of benefits and HR professionals. Moreover, the majority of those surveyed (83%) said that personal financial challenges had a large or some effect on overall employee performance.

And for those employees struggling just to keep up with their daily expenses, raiding their 401(k) plan can seem like an attractive option if they need emergency funds.

Also see: Employers assuming more responsibility for employee financial wellness

For employees, “the struggle is at the banks and lending institutions” where it can be very difficult to get financing, says Adam Potter, co-founder and president of SimpleFi, a Palo Alto-based startup that is offering workers access to low-cost credit and financial coaching as an employee benefit. Banks often don’t lend to people with low credit scores and other lenders tend to take advantage by charging very high interest.

“It’s the relationship between stress, finance, and the benefits not keeping up that we’re trying to fill in,” says Potter.

Access to low-cost loans and financial coaching can, potentially, help prevent the need for expensive payday loans or borrowing from 401(k) accounts. From an employer perspective this helps benefits departments increase efficiencies by not having to manage “retirement leakages,” says Potter.

Also see: Why employers should care about student loan debt

Employers pay a per-employee-per-month fee for the service, which includes one-on-one financial coaching. The firm offers 0% APR loans of between $500 and $1,000, while loans of $1,500 to $10,000 are offered at 9% APR. SimpleFi does not currently lend amounts greater than $10,000.

SimpleFi is currently being used by more than 20 employers, including Stanford Federal Credit Union, San Diego Zoo, LYFE Kitchen, Sutter Health Lakeside, Saint Vincent de Paul, Alameda County Community Food Bank, and Technology Credit Union.

Joel Kranc is a freelance writer based in Toronto.