SAN FRANCISCO (CBS 5) — People who can’t pay their bills traditionally don’t have a lot of options. Now there is a new alternative that can help the cash-strapped keep going.

It’s a San Francisco-based start-up called Bill Float that offers microloans specifically to help pay monthly bills.

Bill Float offers new customers loans of up to $250. The introductory fee is $4.99 or 6.25 percent of the loan amount, whichever is greater.

Users must have a bank account to get a loan. If the transaction is approved, the money goes directly to the biller or service provider.

“The consumer never actually sees the funds or physically has the funds in hand,” said Bill Float cofounder Sean O’Malley.

One month after Bill Float pays the bill, the loan amount is deducted directly from a customer’s bank account. Bill Float e-mails customers a notice three days before the deduction takes place as a reminder. O’Malley would not discuss repayment rates, but said it’s “high.”

O’Malley also said if the money is not in the customer’s account when the deduction is scheduled to take place, Bill Float will “work with customers.” But he said customers are carefully vetted to make sure they can repay.

“This is very different from what the industry is providing to consumers today,” O’Malley told CBS 5 ConsumerWatch.

O’Malley said once the introductory period ends, he thinks the total cost will rise to about $10 per loan. He said interest rates will max out at a yearly rate of 36 percent, or 3 percent a month.

Jose Quinonez of the Mission Asset Fund, a group that provides financial counseling in San Francisco’s Mission District, thinks Bill Float is a much better alternative to payday lenders, which charge far larger fees and require repayment in only two weeks.

“If it’s a one time solution, I think it’s a great thing,” says Quinonez. “If it’s a constant recurring thing I would basically send users to a financial coach so we can figure out what is the problem and get to the root of that.”

Bill Float won’t pay your rent or a personal debt. The money has to be going to a recognized company, like a cable or cell phone provider or utility. Bill Float will also pay some insurance companies and self-storage companies.

(© CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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