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THE SENATE                           S.C.R. NO.            
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                    SENATE  CONCURRENT
                        RESOLUTION
  REQUESTING THE DEPARTMENT OF BUSINESS, ECONOMIC DEVELOPMENT,
    AND TOURISM TO EXAMINE THE CAPITAL ACCESS PROGRAMS
    DEVELOPED IN OTHER STATES AND TO RECOMMEND TO THE
    LEGISLATURE WHETHER HAWAII SHOULD IMPLEMENT A SIMILAR
    PROGRAM.


 1        WHEREAS, since 1986 when Michigan first developed the
 2   capital access program to increase the availability of credit
 3   to small businesses, nineteen states and two municipalities
 4   have gradually implemented similar capital access programs that
 5   have lent a cumulative $1,200,000,000 by the end of 1998; and
 6   
 7        WHEREAS, capital access programs allow banks to use their
 8   own underwriting standards for eligible loans without
 9   governmental approval of the loan-making decision and are
10   designed to encourage banks to underwrite loans to a higher
11   risk threshold than conventional lending criteria; and
12   
13        WHEREAS, the innovative feature of capital access programs
14   is the reserve fund that accumulates at each bank that allows
15   each bank to hold and pool its risk, thereby enabling the bank
16   to make profitable loans to small business owners who would
17   otherwise, on an individual basis, be viewed as too risky; and
18   
19        WHEREAS, in most states that operate capital access
20   programs, almost all small businesses are eligible for loans
21   and a state's up-front payment of three to seven per cent of
22   the loan amount into a bank's capital access program reserve
23   fund supports a bank loan that is fourteen to thirty-three
24   times larger than that amount, creating a huge leveraging
25   effect for the use of public funds without incurring any
26   contingent liability for potential future losses as it would
27   for a loan guarantee program; and
28   
29        WHEREAS, specifically, under a capital access program, the
30   borrower obtains a loan and loan approval directly from the
31   bank without the need for governmental approval or review.  The
32   bank and borrower pay an up-front insurance premium that,
33   combined, generally ranges from three to seven per cent of the
34   loan amount.  In practice, the bank may pass most of its

 
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                                  S.C.R. NO.            
                                                        
                                                        

 
 1   portion of the premium on to the borrower by financing the
 2   premium in the loan proceeds.  Banks have the discretion to set
 3   interest rates.  The bank holds all of the premiums in a
 4   single, pooled reserve fund.  The bank enrolls the loan by
 5   faxing a form to the state, providing particulars and
 6   certifying that it meets program eligibility requirements.  The
 7   state then deposits a matching amount, most often a one-to-one
 8   match, into the originating bank's capital access loan reserve
 9   fund.  In this way, each bank creates its own funded loan loss
10   reserve to cover a loss on any of its capital access loans.
11   The bank recovers any capital access loan losses by offsetting
12   against the reserve fund it holds.  However, the bank itself
13   must absorb any losses over its accumulated capital access loan
14   reserve fund; and
15   
16        WHEREAS, data on capital access programs show that these
17   loans reach some groups not as well served by other credit
18   enhancement programs:
19   
20        (1)  Capital access programs reach minority-owned
21             businesses and low- and moderate-income communities
22             in substantial numbers;
23   
24        (2)  Capital access program lending retains and creates a
25             significant number of jobs; and
26   
27        (3)  In some states, capital access programs are used
28             significantly for start-up businesses and for working
29             capital, both of which are often cited as needs not
30             satisfied by the private market without public
31             support;
32   
33   and
34   
35        WHEREAS, capital access programs do not require intensive
36   and costly staffing required of other credit enhancement
37   programs and require little administrative cost for banks,
38   borrowers, or the government; and
39   
40        WHEREAS, capital access programs provide a comparatively
41   simple tool for banks to increase marginally their risk
42   tolerance and, in so doing, to bring capital to an expanded
43   population of viable small businesses; now, therefore,
44   
45        BE IT RESOLVED by the Senate of the Twentieth Legislature
46   of the State of Hawaii, Regular Session of 2000, the House of
47   Representatives concurring, that the Department of Business,

 
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                                  S.C.R. NO.            
                                                        
                                                        

 
 1   Economic Development, and Tourism is requested to examine the
 2   capital access programs developed in other states and to
 3   recommend to the Legislature whether Hawaii should implement a
 4   similar program; and
 5   
 6        BE IT FURTHER RESOLVED that the Department of Business,
 7   Economic Development, and Tourism is requested to report its
 8   findings and recommendations, including any necessary proposed
 9   legislation, to the Legislature no later than twenty days prior
10   to the convening of the Regular Session of 2001; and
11   
12        BE IT FURTHER RESOLVED that certified copies of this
13   Concurrent Resolution be transmitted to the Director of
14   Business, Economic Development, and Tourism, the Director of
15   Commerce and Consumer Affairs, who is requested to distribute
16   copies of this Concurrent Resolution to financial institutions
17   in Hawaii.
18   
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20 
21 
22                         OFFERED BY:  ____________________________