ESPP Financing Pros And Cons

Benny is a fintech that offers Employee Stock Purchase Plan (ESPP) financing, making it easier for employees to participate in their company ESPPs. 

An ESPP is a financial arrangement that allows an employee to buy company stock (typically at a favorable price) using payroll deductions. The favorable pricing makes it very likely that employees will see a handsome gain on their investments. 

However,  ESPPs limit when you can buy and sell the stock, which can put a pinch on your personal cash flow.
Benny connects you with loans that allow you to participate in your ESPP and still pay all your bills. As long as the investment pays off, you come out ahead. Here’s how Benny works.

Benny manages ESPP’s and connects employees with financing options so they can maximize the “instant” gains an ESPP can provide. ESPPs offers unique financial benefits, but many people can’t afford to participate because they need most of the money from their pay check.

Benny has a solution to not only manage your ESPP account, but also connect you with loans so that you can max out this benefit.

As mentioned, Benny connects ESPP account holders with financing that can allow them to fully use the ESPP without having to settle for a smaller paycheck. Here’s a closer look at how it works and how employees can benefit. 

Invest and Spend Simultaneously

Benny’s main value proposition is its ESPP financing, and it can be summarized in 3 steps: 

1. Enroll in your company ESPP: The first step is to join your company’s ESPP program, which enables you to purchase company stock at a discount not available to the general public.  

2. Receive deposits into your bank account: Because ESPP contributions are deducted from an employee’s paycheck, it prevents many people from participating in what is otherwise a generous employee benefit program. Benny works by offsetting the ESPP deduction with a cash advance of an equal amount. 

3. Receive your stock gains and repay the cash advance: At the end of the ESPP enrollment period, the employer will purchase the ESPP shares for its employees at a discount of up to 15%. At this point, the employee can realize the instant gains on the shares, and use those funds to repay the cash advance owing, plus any applicable fees. 

The end result is that the employee has been able to obtain a substantial amount of company stock at a discount without being out of pocket for the purchase. 

Get Paid on a Regular Schedule

Benny “pays” you on a regular schedule. Whenever you fund your ESPP, Benny sends an equivalent amount to your checking account. The result is that you don’t feel any financial pinch even though you’re funding your ESPP account.

Borrow Money At The Best Rates

Benny doesn’t lend money to its customers. Instead, it connects them with lenders who offer the best possible rates. In today’s high interest rate environment, the rates can be quite high. But as inflation lowers, the rates may start to be more reasonable.

Manages Your ESPP Account

Unlike most well-diversified retirement accounts, you don’t want to build up huge balances in your ESPP. If you have too much money in any single company stock, it can mess up the asset allocation of your overall portfolio, increasing your risk.  

Benny fully manages your ESPP. This includes allowing you to sell your company stock so that you can repay your loans and enjoy the extra cash. 

Benny clients pay $7 per month for Benny’s management fee. You also have to pay interest on any money that you borrow from Benny’s partners. The interest rates are quite high right now, so be careful with these loans. You may find that the guaranteed gains barely offset the borrowing costs. It is worth noting that the website has a discrepancy related to its fees. In some locations it says $7 and others it says $12. The personalized quote that was sent to me showed a $7 fee.

Not many organizations offer ESPP financing, so Benny doesn’t have many direct competitors – Lendtable may be Benny’s only notable competition. 

Lendtable works with a longer list of companies than Benny. However, its fees are much higher. In fact, you could pay a lot more going through Lendtable. The company used to charge a $10 monthly fee, but that increased to $50/month as of March 2024. In addition, for ESPPs, Lendtable takes a flat fee equal to 35% of the stock discount you receive. 

Wealthfront doesn’t offer ESPP financing, but it does offer automated investing for a low 0.25% annual portfolio fee. You can open an individual or joint taxable account, or several types of IRA accounts, including traditional, SEP, and Roth IRAs. If you would prefer to finance your ESPP on your own but are looking for another affordable investment app for the remainder of your portfolio, Wealthfront is a solid choice. 

Benny certainly offers an innovative product. That said, you may want to consider alternatives to an ESPP financing scheme.

In an ideal world, you would want to build a financial cushion that’s large enough that you can manage a lower income for a few months. Once you have that cushion, you can buy and sell your employer’s stock and capture all the benefits for yourself. Another option is to use a low-interest credit card to float your expenses. However, this is risky because you may

To open a Benny Account, you request a personalized quote through the Sign Up Page. Provide your email address, a password, your employer, and your current salary. Benny will send a personalized quote to your inbox within two days. If you want to move forward, you will need to sign up for your ESPP, and connect both your ESPP and your bank account.

We were unable to find Benny’s privacy and security policy on its websites. It is clear that Benny uses a progressive enrollment to ensure that you never provide more information than is absolutely required at that time. To start, you don’t even provide your name or address. If you opt to go through with using Benny, you will need to go through underwriting and connect your accounts.

Benny is a fintech company, and its partners are held to a banking standard which means that Benny must comply with a large number of laws. In 2023, it helped employees save more than $1 million, and the venture-backed company has money to spend on security and infrastructure. In all likelihood, it is relatively safe to use Benny, but identity theft is a real risk, especially with newer companies.

Email Benny at support@heybenny.com or call 608-302-6665 to get in touch with Benny. The company also has a chat on the site. The chat is only open during working hours.

Benny offers a free “how-to” guide that explains how to take advantage of your ESPP. If you don’t understand your ESPP, sign up and use that resource. However, the rates on ESPP loans are quite high right now. Most likely the money you can make from interest rate arbitrage isn’t worth the risk. If you lose your job or quit, you’ll still owe money, but you won’t have the gains from your ESPP to offset the borrowing costs. That could lead to hundreds of dollars in losses for you.

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