Report Title:

Capital Loan Program

Description:

Moves the Hawaii Capital Loan Program to the Hawaii Strategic Development Corporation.

THE SENATE

S.B. NO.

719

TWENTY-THIRD LEGISLATURE, 2005

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE CAPITAL LOAN PROGRAM.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that financial resources are not being made available to new and existing small businesses who seek assistance through private or conventional lenders. This support is important as these small businesses play an integral role in the development of alternative industries and employment growth.

Further, for the purpose of improving government efficiency, the legislature finds that the State's business financing programs, including the Hawaii capital loan program under the department of business, economic development, and tourism and the Hawaii strategic development corporation, an attached agency of the department of business, economic development, and tourism, should be combined to ensure that businesses seeking state financial assistance can obtain that assistance from a single entity.

SECTION 2. Chapter 211F, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"PART . CAPITAL LOAN PROGRAM

§ 211F-A Definitions. As used in this part:

"Department" means the department of business, economic development, and tourism.

"Director" means the director of business, economic development, and tourism.

"Small Business Administration" means the Small Business Administration of the United States.

"Small Business Investment Act" means the Federal Small Business Investment Act of 1958, as amended.

"Small business concerns" means the business concerns that are defined in the Small Business Act (P. L. 87-367), as amended and classified by the Small Business Administration in its size standards.

§ 211F-B Hawaii capital loan program. There is created a capital loan program which shall be administered by the corporation in accordance with the spirit and intent of this part.

§ 211F-C Hawaii capital loan special fund. (a) There is established the Hawaii capital loan special fund into which shall be deposited all moneys received as repayment of loans and interest payments as provided by this part. The corporation may utilize a portion of the moneys contained in the Hawaii capital loan special fund for programs associated with administering the fund and its mandated purpose. The corporation may transfer moneys from the Hawaii capital loan special fund established by this section to the Hawaii technology loan revolving fund established by section 206M-15.6, the state disaster revolving loan fund established by section 209-34, or the Hawaii strategic development corporation fund established by this chapter, and moneys from these funds shall be disbursed by the relevant department or director pursuant to chapters 206M, 209, and 211F, respectively. The department or the director may transfer moneys from the state disaster revolving loan fund to the Hawaii capital loan special fund for disbursement pursuant to this part.

(b) The total amount of moneys transferred to the state disaster revolving loan fund or the Hawaii capital loan special fund shall not exceed $1,000,000 for each respective fund within the calendar year. Any transfers to or from the Hawaii technology loan revolving fund shall be approved by the board members of the respective corporation.

(c) Notwithstanding subsection (b) to the contrary, the total amount of moneys transferred between the state disaster revolving fund and the Hawaii capital loan special fund shall not exceed $1,000,000 within the calendar year if the governor proclaims a state disaster pursuant to section 209-2.

(d) The corporation shall report any transfer of funds made under this section to the legislature within ten days of the transfer.

§ 211F-D Functions, powers, and duties of corporation. In the performance of, and with respect to, the functions, powers, and duties vested in the corporation by this part, the corporation may:

(1) Adopt rules pursuant to chapter 91 to carry out this part; and

(2) Perform all functions necessary to effectuate the purposes of this part.

§ 211F-E Rules. The rules shall:

(1) Prescribe the qualifications for eligibility of applicants for loans;

(2) Establish preferences and priorities in determining eligibility for loans;

(3) Establish the conditions, consistent with the purposes of this part, for the granting or for the continuance of a grant of a loan; and

(4) Provide for inspection, at reasonable hours, of the plant, books, and records of a small business concern that has applied for or has been granted a loan, and to require the submission of progress and final reports.

§ 211F-F Direct loans, terms, and restrictions. (a) The corporation may make loans to small business concerns for the financing of plant construction, conversion, expansion, acquisition of land for expansion, acquisition of equipment, machinery, supplies, or materials, or to supply working capital. The corporation may also make loans to assist businesses located in communities near military installations to develop infrastructure to minimize the possibility of or assist in the mitigation of the adverse effects of the closure or reduction in capacity of a military installation. The loans may be made in conjunction with loans made by other financial institutions, including the Small Business Administration. Where the loans made by the corporation are secured, the security may be subordinated to the loans made by other financial institutions, when the subordination is required to obtain loans from such institutions. The necessity for and the extent of security required in any loan shall be determined by the corporation.

(b) The corporation may make loans to business concerns located in a county with a population of less than 150,000; provided that the interest on loans made under this subsection shall bear simple interest at the rate of three per cent below the prime rate or at a rate of five and one-half per cent a year, whichever is lower. For purposes of this subsection, the prime rate shall be determined on the first day of each month, and shall be the rate charged by the two largest banks in the State identified by the department of commerce and consumer affairs. Should there be a difference in rate charged by the institutions, the lower of the two shall be used. Payments required under loans made under this subsection may be deferred, but no loans made under this subsection shall be forgiven.

(c) Except as may be expressly provided otherwise for loans made under subsection (b), the foregoing powers shall be subject to the following restrictions and limitations:

(1) No loans shall be granted unless financial assistance is not available to the applicant. This condition may be waived by the corporation for participation loans or loan guarantees with a private financial institution;

(2) The amount of all loans to any one applicant at any one time shall in no case exceed a total of $1,000,000;

(3) No loan shall be made for a term exceeding twenty years;

(4) Within counties of a population exceeding 150,000, each loan shall bear simple interest at a rate of one per cent below the prime rate or at a rate of seven and one-half per cent a year, whichever is lower. For the purposes of this paragraph, the prime rate shall be determined on the first day of each month, and shall be the rate charged by the two largest banks in the State identified by the department of commerce and consumer affairs. Should there be a difference in rate charged by the institutions, the lower of the two shall be used;

(5) The commencement date for the repayment of the first installment on the principal of each loan may be deferred by the corporation, but in no event shall such initial payment be deferred in excess of five years; and

(6) The payment of interest on the principal of a loan may be deferred by the corporation, but in no event shall interest payments be deferred in excess of two years from the date of issuance of the loan.

(d) Except as may be expressly provided otherwise for loans made under subsection (b), any restriction or limitation in subsection (c) may be waived at the corporation's discretion where the applicant is a reuse or recycling business that meets the following criteria:

(1) The business has potential to have an impact on overall solid waste reduction and achievement of the State's reduction goals;

(2) The business addresses the alternative management of wastes identified by the operators of a solid waste disposal facility as problematic;

(3) The business maximizes economic benefits through import reduction or an increase in the tax base;

(4) The business has potential for job creation; and

(5) The business has a plan that accurately reflects detailed and justifiable expenses and revenues, shows potential for profit, and shows an ability to meet market demand for end products.

(e) The corporation may contract with any financial institution for services including servicing or administering loans pursuant to this section.

(f) For the purposes of this section, "financial institution" means any organization authorized to do business under state or federal laws relating to financial institutions, including without limitation, banks, savings banks, savings and loan companies or associations, financial services loan companies, and credit unions.

§ 211F-G Loans to development companies. (a) The corporation may make loans to development companies incorporated in the State for the purpose of supplementing the funds required to be forthcoming to qualify development companies to receive financial assistance under title V of the Small Business Investment Act. The loans shall be subject to terms and conditions prescribed by regulations adopted by the Small Business Administration.

(b) Subject to the availability of funds, a request from the high technology development corporation for a transfer of funds to supplement appropriations for small business innovation research grants shall be granted expeditiously. If available funds are inadequate for a transfer to the high technology development corporation, the corporation shall advise the high technology development corporation that a transfer will be made when sufficient funds are available in the Hawaii capital loan special fund.

§ 211F-H Loans guaranteed by the corporation. (a) The corporation may guarantee up to ninety per cent of the principal balance of a loan made to a qualified small business concern by a private lender who is unable to otherwise lend the applicant sufficient funds at reasonable rates; provided that at no time shall the aggregate amount of the State's liability, contingent or otherwise, on loans guaranteed under this section exceed $10,000,000 based on a reserve level established at twenty-five per cent of the loan guarantee amount, with the reserve amount to be funded being calculated by determining the difference between the capital loan special fund balance at the beginning of each fiscal year and its annual authorization ceiling, excluding capital loan balances allocated to underground storage tank projects.

(b) Loans guaranteed under this section shall be limited by section 211F-F, except that through rules, the corporation may specify:

(1) That loan guarantees are to be limited to businesses in industries identified by rules as offering significant potential contributions to the growth or diversification of the State's economic base;

(2) The conditions under which the State may become a co-guarantor or a subordinate guarantor to a loan guarantee by a federal government program; and

(3) The specific types of loans that may be guaranteed under this program, consistent with paragraph (1), including product export financing, contract order-based loans, and processing plant or factory loans.

(c) Interest charged on a guaranteed loan made under this section shall be determined by the corporation based on the market rate of interest charged by the private lender for a similar type of loan unless waived by the corporation.

(d) When the application for a guaranteed loan has been approved by the corporation, the corporation shall issue to the lender a guaranty for that percentage of the loan on which it guarantees payment of principal and interest. The lender shall collect all payments from the borrower and otherwise service the loan.

(e) In return for the corporation's guaranty, the lender shall remit a one-time fee of two per cent on the principal amount of the guaranteed portion of the loan, at the time the loan is booked, except for the following:

(1) On loans of $75,000 or less with a maturity exceeding twelve months, a reduced fee of one per cent; and

(2) On loans with a maturity of twelve months or less, a reduced fee of one per cent shall be paid.

This fee may be paid by the borrower as a cost for the loan.

(f) When any installment of principal and interest has been due for sixty days and has not been paid by the borrower, the corporation shall issue, on request of the lender, a check for the percentage of the overdue payment guaranteed, thereby acquiring a division of interest in the collateral pledged by the borrower in proportion to the amount of the payment. The corporation shall be reimbursed for any amounts so paid plus the applicable interest rate, where payment is collected from the borrower.

(g) Under conditions specified in rules adopted by the corporation, the lender may request that a portion or all of the guaranteed percentage of the principal balance of the loan be converted to a participating share held by the corporation.

(h) If the lender determines that it intends to initiate foreclosure proceedings to collect moneys due from the borrower, it shall so notify the corporation. Within thirty days of the notification, the corporation may elect to request an assignment of the loan on payment in full to the lender of the principal balance and interest due. Foreclosure proceedings shall be held in abeyance in the interim.

(i) The lender may reduce the percentage of the principal balance guaranteed under this section at any time.

§ 211F-I Reports. The corporation shall make a report as of December 31 of each year of operations under this part to the governor, the president of the senate, and the speaker of the house of representatives, on the progress made under this part. These reports shall be submitted not later than February 1 immediately following the period covered by the report."

SECTION 3. Chapter 210, Hawaii Revised Statutes, is repealed.

SECTION 4. All rights, powers, functions, and duties of the director of the department of business, economic development, and tourism under chapter 210, Hawaii Revised Statues, are transferred to the Hawaii strategic development corporation. The incumbent in the business loan officer II position, position number 15522, is transferred to the Hawaii strategic development corporation. Such employee shall be transferred with no change to its functions, duties, classification, pay, benefits, tenure, seniority, prior service credit, vacation, sick leave, or other employee benefit or privilege in the execution of the transfer. Subsequent changes in status shall be made in accordance with applicable state personnel laws, rules, policies, procedures, and collective bargaining agreements.

If an office or position held by an officer or employee is abolished as a result of this Act, the employment action affecting the officer or employee shall be in accordance with applicable state personnel laws, rules, policies, procedures, and collective bargaining agreements.

SECTION 5. All rules, policies, procedures, guidelines, and other material adopted or developed by the department of business, economic development, and tourism to implement provisions of the Hawaii Revised Statutes that are reenacted or made applicable to the Hawaii capital loan program by this Act, shall remain in full force and effect until amended or repealed. In the interim, every reference to the director of or to the department of business, economic development, and tourism in those rules, policies, procedures, guidelines, and other material is amended to refer to the Hawaii strategic development corporation.

SECTION 6. All deeds, leases, contracts, loans, agreements, permits, or other documents executed or entered into by or on behalf of the department of business, economic development, and tourism pursuant to the provisions of the Hawaii Revised Statues, which are reenacted or made applicable to the Hawaii capital loan program by this Act, shall remain in full force and effect.

SECTION 7. All appropriations, records, equipment, machines, files, supplies, contracts, books, papers, documents, maps, and other personal property heretofore made, used, acquired, or held by the department of business, economic development, and tourism relating to the functions of the Hawaii capital loan program transferred to the Hawaii strategic development corporation shall be transferred with the functions to which they relate.

SECTION 8. In codifying the new sections added to chapter 211F, Hawaii Revised Statutes, by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in the designations of those new sections in this Act.

SECTION 9. This Act shall take effect on July 1, 2005.

INTRODUCED BY:

_____________________________

BY REQUEST