Skip to content
Home » The Pros and Cons of Financing Your Employee Stock Purchase Plan (ESPP)

The Pros and Cons of Financing Your Employee Stock Purchase Plan (ESPP)

Understanding the Value of ESPPs

Employee Stock Purchase Plans (ESPPs) present a great opportunity for employees of publicly traded companies to buy company stock often at a discounted rate. 

If your ESPP offers a discount (most do), it transforms this benefit from a simple employee perk into a powerful financial tool, giving you the opportunity to earn more each year. You get to buy stock below the market value, opening the door to additional earnings today if you sell as soon as you receive the shares or for upside in the future if you decide to hold the shares. Learn more about ESPPs here.

The Challenge of ESPP Participation

The primary hurdle in maximizing your ESPP benefits lies in its requirement: you need to allocate a chunk of your paycheck, often up to 10-15%, to fully utilize the benefit. This represents a significant portion of your income. 

This means folks face the following questions: 

  • Can I max out my ESPP myself without impacting my day-to-day living?
  • Should I cut benefit contributions elsewhere, like my 401(k)?
  • Do I not participate at all and leave money on the table?
  • Do I cut other things out of my budget to make it work? 
  • Do I want to change my investment allocation decisions to accommodate ESPP contributions?

ESPP Financing as a Solution

One tool to short-circuit those considerations is to finance your Employee Stock Purchase Plan (ESPP).

By borrowing funds to cover your ESPP contributions, you are able to fully utilize your ESPP without impacting your day-to-day finances. The idea is to use a loan to tap into this benefit, and despite the interest costs, the returns from purchasing discounted stock can still be favorable.

Of course, you’ll have to consider the cost of financing as you make this decision. 

Let’s now dive deeper into the pros and cons of financing your ESPP. The goal is to arm you with the info you need to make the best personal finance decisions for yourself.

Pros of Financing Your ESPP

  • Enables you to participate fully in your ESPP without impacting your day-to-day finances 
  • You can maximize potential gains from purchasing your companies shares at a discount 
  • Pay for the financing directly from the gains you’ve unlocked via your ESPP participation.
  • Opens the ESPP benefit up to everyone including:
    • Those with limited cash flow
    • Those that are looking to leverage external funds to earn from their ESPP

Cons of Financing Your ESPP

  • The interest on the loan and fees can eat into your profits
  • It takes time to apply and manage the financing 
  • If you lose your job, you are still responsible for repaying the loan and any accrued fees

Who Benefits the Most From ESPP Financing?

Given the pros and cons of ESPP financing, we see this as a potential tool for employees that fall into these two categories:

  • Investment & Savings Oriented: Employees looking to redirect funds, which would otherwise be tied up, into other financial goals, such as investments or savings 
  • Budget-Conscious Oriented: Employees who want to participate in their ESPP but don’t want to take the cash-flow hit.

Seeking Guidance? Learn more with Benny

If you’re considering whether financing your ESPP contributions is the right move, Benny is here to help. Our team can provide a free ESPP consultation, tailor a plan to your financial situation and help you maximize your ESPP. Schedule a free consult here.

Benny’s Approach to Increasing ESPP Participation

Benny simplifies ESPP financing for you.

With each company’s unique structure, our focus is on clarity and support. We start with free, educational insights to empower your decisions. Should you choose Benny for financing, our sole fee is a straightforward, fixed interest rate—a fraction of your ESPP gains. This way, you enjoy the ESPP benefits, while keeping your paycheck intact.