I came across an article promoting a new fintech product and I think it has two applications for companies in the accounts receivable management space — it can be used to help boost employee loyalty and reduce turnover and it can be a potential type of debt that will need to be collected, making it a new channel for companies looking for new sources of accounts and portfolios.
The product is a “forgivable loan” or what Keep Financial is calling a “vesting cash plan.” Keep Financial was started by two of the co-founders of Kabbage, and is meant to allow employers to distribute cash bonuses to employees on a regular schedule, as long as the employee does not leave. The model is akin to stock options that are offered to employees at start-up companies.
Employer-forgivable loans are common in certain industries as a tool to help employees pay for things like tuition, ongoing eduction, or tools or equipment needed to perform a job — like a mechanic.
There are tax and legal implications that have made these types of loans difficult, but Keep says it has worked out a process to make sure the Internal Revenue Service does not tax these types of loans as one-time cash bonuses, which makes the employee liable for tax on the full amount of the loan up-front instead of over time as the loan vests.
For employees who leave early, they have 60 days to repay the unvested amount at 0% interest, or they can choose to pay it back over a longer period with a higher interest rate.
Keep Financial has raised $9 million already to grow its product and there seems to be interest from other companies to copy the model now that it looks like someone may have cracked the code. This could create an opportunity down the line where these companies may need to hire collection agencies to recover unvested portions that are not paid back.