Income Advance: The Gold Standard Employer Sponsored Small Dollar Loan Program

Income Advance offers employees quick access to small dollar loans, directly from a bank or credit union. Rather than running a credit check, the key data point used to underwrite Income Advance loans is the borrower’s stable employment – because of this criterion, the loans are often referred to as Employer Sponsored Small Dollar Loans (ESSDL). But not all ESSDLs are created equal.  

So what is the “Gold Standard” Income Advance program the RFF advocates for? 

First, the key requirements of Income Advance are:

• Employer Sponsored Eligibility meaning No Credit Checks 

• 20% APR cap

• $2000 max loans

• 6-12 month payback period

• Repay through payroll deduction 

• Once the loan is paid back, continue payments into a savings account until the employee opts out. 

While the core parameters provide a solid framework for the Income Advance program, our gold standard goes beyond just meeting these basic requirements. The true value of the program lies in its ability to make a meaningful impact through several key principles:

1. Accessibility & Inclusivity: The program is designed to be easily accessible to all employees, regardless of their financial background. By eliminating complex eligibility criteria, such as credit checks, and streamlining the application process, the program ensures that those who need help can get it quickly and without unnecessary barriers. For eligibility we advocate for simply “good standing employment” and absolutely no credit check. That way the funds can be in the employee’s hands within 24 hours of application. 

2. Affordability: An Income Advance program loan has a maximum APR of 20%, inclusive of all fees and interest. This affordability is a cornerstone of the gold standard, ensuring that the program doesn’t add unnecessary financial burdens but instead provides a realistic and manageable solution to immediate needs. It also allows financial institutions to operate near the breakeven point, ensuring sustainability. With repayment terms of 6 to 12 months, these small-dollar loans are designed for individuals who might not qualify for traditional loans, such as those who are underbanked, have no credit, or have low credit. While a 20% APR might seem high, the total interest paid typically amounts to $75 to $100 over the life of the loan, or roughly $13 per month. This is substantially lower than alternative products like credit cards, payday loans, pawn loans, overdrafts, and earned wage access, which often carry significantly higher APRs—frequently in the triple digits—and additional fees, interest, and subscription costs. While these alternatives may offer short-term relief, they often lead to long-term financial issues and dependency.

3. Transparency and Fairness: Transparency is key to building trust, and the Income Advance program ensures that all terms and conditions are clearly communicated to participants. There are no hidden fees or surprise charges, and the repayment process is straightforward and fair. This transparency helps users feel confident in their decision to use the program, knowing that they won’t be caught off guard by unexpected costs.

4. Long-Term Impact: The goal of Income Advance isn’t just to provide temporary relief to employees but to contribute to their long-term financial health. This program helps individuals build a stronger financial foundation and credit history, reducing the likelihood of future financial crises. Once the loan is paid back, we advocate for payments to continue to come out of an employee's paycheck, until they elect to stop these, and be put into a savings account. This way, employees will be in a better position to tackle an unexpected expense and hopefully alleviate some financial stress. 

The "Gold Standard" Income Advance program is more than just a financial lifeline—it's a comprehensive tool for enhancing employee financial well-being. By prioritizing accessibility, affordability, transparency, and long-term impact, this program not only addresses immediate financial needs but also fosters a culture of financial stability and responsibility. It empowers employees to navigate unexpected expenses without falling into debt traps, builds their credit, and encourages savings. As organizations consider implementing or refining their Income Advance offerings, adhering to these principles will ensure that they provide a valuable, sustainable, and fair resource for their workforce.