Employer-Sponsored Loan Program

Written by jaradponce

Not Financial Advice

Suppose an employer-sponsored loan program for city employees in Fredericksburg; here is a plan and its potential implementation:

  1. Establish a Loan Fund:

The first step would be to create a dedicated loan fund using the city’s investment or wealth fund. This fund is used to purchase low-risk assets, such as US Treasuries, that provide a stable and reliable source of income. Fredericksburg can use revenues to build a loan or wealth fund over time if the city does not have a wealth fund or loan fund. Suppose a dedicated partner with an existing financial business, such as Davenport and Company LLC, handles the operational aspects of the fund.

  1. Borrowing Against Assets:

Fredericksburg would then leverage the purchased US Treasuries as collateral to secure cash from lending institutions or the market. This borrowed cash would serve as the lending pool to provide loans to city employees.

  1. Loan Repayment Mechanism:

The repayment collection mechanism would involve a scheduled income withholding plan, where the loan’s repayments collection automatically deducts from the employee’s salary. Essentially, the city would employ an interest-rate swap agreement with the borrowers. Where the repayment’s collection is through a scheduled income withholding plan, the “interest rate swap” is the difference between the inflation rate’s effect on cash between the time of the loan’s issuance and the rate throughout the collection. The “collection” would be the repossession (REPO) of a repo agreement, allowing city employees to borrow money from their employer at near risk-free rates.

  1. Risk Management:

The lending risk mitigation is credit eligibility thresholds for potential borrowers. Eligibility thresholds could consider credit scores, income stability, and employment history to determine loan eligibility. By setting appropriate criteria, the city can minimize the risk of loan defaults and ensure borrowers’ repayment ability.

  1. Implementation and Administration:

The loan program’s administrative management infrastructure is programmed to handle loan applications, disbursements, repayments, and ongoing loan management. The software could involve establishing a dedicated partner with an existing financial business, such as Davenport and Company LLC, to handle the program’s operational aspects.

  1. Education and Communication:

To effectively implement the program, it would be crucial to educate city employees about the benefits and terms of the loan program. Clear communication channels, including employee workshops, online resources, and a dedicated website establishment, provide guidance and support to employees throughout the borrowing process.

  1. Monitoring and Evaluation:

Regularly evaluating the loan program’s performance would be essential. Evaluating performance would involve analyzing loan repayment rates, borrower satisfaction, program costs, and overall effectiveness. Feedback from participants can help identify areas for improvement and ensure the program’s continued success.

References

Bodie, Zvi. 2021. Essentials Of Investments. 12th. New York City, New York: McGraw-Hill Higher Education.

Brandl, Michael. 2021. Money, Banking, Financial Markets & Institutions. 2nd. Boston, Massachusetts: Cengage Learning.

Grimes, Paul, Charles Register, and Ansel Sharp. 2015. Economics of Social Issues. 21st. New York City, New York: McGraw-Hill Education.

Keat, Paul, Philip Young, and Stephen Erfle. 2013. Managerial Economics, Economic Tools for Today’s Decision Makers. Edited by 7th. New Jersey: Pearson.

Mankiw, Gregory. 2015. Macroeconomics. 9TH. New York: Worth Publishers.

Rycroft, Robert. 2017. The Economics of Inequality, Discrimination, Poverty, and Mobility. 2nd. New York: Routledge.