> ## Documentation Index
> Fetch the complete documentation index at: https://docs.bumara.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Staff loans

> Creating loans, automatic repayment from payroll, and handling early settlement and leavers.

Staff loans are recovered automatically from payroll. You set the loan up once, and each pay run
deducts the instalment until it is repaid.

## Before you lend

<AccordionGroup>
  <Accordion title="Have a written policy">
    Who is eligible, the maximum amount, the maximum term, whether interest is charged, and what
    happens if the employee leaves. Without a policy, every request becomes a negotiation.
  </Accordion>

  <Accordion title="Set your limits in payroll settings">
    Maximum amount and maximum term. Bumara enforces them, which saves you from making exceptions
    under pressure.
  </Accordion>

  <Accordion title="Check the deduction cap">
    Total deductions cannot exceed your configured maximum percentage of gross, commonly 50%. An
    employee already carrying deductions may not have room for the instalment you are contemplating.
  </Accordion>

  <Accordion title="Put it in writing">
    A signed loan agreement covering the amount, the term, the instalment, any interest, and what
    happens on leaving. A verbal agreement is unenforceable and unpleasant to unwind.
  </Accordion>
</AccordionGroup>

## Creating a loan

<Steps>
  <Step title="Open Payroll, then Loans, then Create loan">
    From the Payroll sidebar.
  </Step>

  <Step title="Enter the details">
    | Field                     | Notes                                    |
    | ------------------------- | ---------------------------------------- |
    | **Employee**              | Who is borrowing                         |
    | **Principal amount**      | The amount lent                          |
    | **Interest rate**         | Annual percentage. Zero if interest-free |
    | **Number of instalments** | How many months of repayment             |
    | **Start date**            | When the first repayment is deducted     |
    | **End date**              | When the final repayment falls           |
  </Step>

  <Step title="Check the calculated instalment">
    Bumara works it out from the principal, interest and number of instalments. Confirm the
    employee can afford it alongside their existing deductions.
  </Step>

  <Step title="Save">
    The loan is created as **Pending**.
  </Step>

  <Step title="Activate it">
    Once the money has been paid to the employee, move it to **Active**. Instalments now deduct
    from every pay run.
  </Step>
</Steps>

## The loan lifecycle

| Status        | Meaning                                                       |
| ------------- | ------------------------------------------------------------- |
| **Pending**   | Created, not yet disbursed. No deductions                     |
| **Active**    | Disbursed. Instalments deduct each pay run                    |
| **Completed** | Fully repaid. Set automatically when the balance reaches zero |
| **Defaulted** | Not being repaid — typically after a leaver with a balance    |
| **Cancelled** | Withdrawn before disbursement                                 |

## Automatic repayment

Once active, the instalment is deducted in every pay run within the loan's date range. You do not
enter it in monthly inputs.

| Situation                         | What happens                                             |
| --------------------------------- | -------------------------------------------------------- |
| Normal month                      | The instalment deducts, and the balance reduces          |
| The deduction cap is reached      | The instalment is reduced; the shortfall carries forward |
| The employee is unpaid this month | No deduction. The term extends                           |
| The balance reaches zero          | The loan completes and deductions stop                   |

## Viewing a loan

The loan detail page shows:

| Panel        | Contents                                                |
| ------------ | ------------------------------------------------------- |
| **Summary**  | Principal, interest, total repayable, instalment amount |
| **Progress** | Instalments paid out of total                           |
| **Balance**  | What remains outstanding                                |
| **History**  | Every repayment, with the pay run it came from          |
| **Dates**    | Start, expected end, and actual end if complete         |

## Early settlement

If an employee wants to clear the balance:

<Steps>
  <Step title="Check the outstanding balance">
    On the loan detail page.
  </Step>

  <Step title="Confirm how interest is treated">
    Whether early settlement reduces the interest depends on your policy and the loan agreement.
  </Step>

  <Step title="Take the payment">
    Or deduct the balance in full from a single pay run, if the deduction cap allows.
  </Step>

  <Step title="Record the settlement">
    The loan moves to **Completed**.
  </Step>
</Steps>

## When an employee leaves

<Steps>
  <Step title="Check the outstanding balance">
    Before calculating their final pay.
  </Step>

  <Step title="Recover what you can from the final payment">
    Subject to the deduction cap and to employment law on final deductions.
  </Step>

  <Step title="Agree repayment for any remainder">
    In writing, before they leave. Recovering money from a former employee without a written
    agreement is difficult.
  </Step>

  <Step title="Mark the loan appropriately">
    Completed if fully recovered; defaulted if not.
  </Step>
</Steps>

<Warning>
  This is the single biggest risk in staff lending. Once someone has left, your leverage is gone.
  Address the outstanding balance as part of the exit conversation, not afterwards.
</Warning>

## Reporting

The loan report shows every loan, its status, its outstanding balance and its repayment progress.

| Watch for                                   | Meaning                                |
| ------------------------------------------- | -------------------------------------- |
| Total outstanding across all loans          | Your overall exposure                  |
| Loans where instalments are being capped    | Employees over-committed on deductions |
| Loans nearing their end date with a balance | The term will overrun                  |
| Defaulted loans                             | Money you may not recover              |

## Advances versus loans

|                       | Salary advance                       | Staff loan          |
| --------------------- | ------------------------------------ | ------------------- |
| **Amount**            | Small, usually part of a month's pay | Larger              |
| **Repayment**         | One deduction, next pay run          | Over several months |
| **Interest**          | None                                 | Optional            |
| **Set up as**         | An input in monthly inputs           | A loan record       |
| **Written agreement** | Usually not                          | Always              |

Use advances for short-term needs and loans for anything larger. Repeated advances by the same
employee usually indicate something a loan would handle better.

<Note>
  Related: [Pay elements](/payroll/pay-elements) for the deduction cap, and
  [Monthly inputs](/payroll/monthly-inputs) for advances.
</Note>