SB132

SECTION 1. The legislature finds that the COVID-19 pandemic, supply chain issues, and inflation have hurt the State's economy and local businesses on every level, including the start-up industry. Despite this, many small businesses and entrepreneurs are ready to take the leap into starting up a business but lack the resources to do so, as access to capital is one of the biggest barriers for start-ups.

The legislature further finds that new businesses and young companies under five years of age create the most new jobs, on net, in the United States. While the State offers a variety of financial assistance to start-up businesses in Hawaii, most assistance is to help existing businesses expand and scale up, rather than to help successfully launch new businesses.

The legislature believes that providing support to local small businesses and entrepreneurs looking to begin a start-up could lead to the creation of more jobs in the State.

The purpose of this Act is to benefit the local economy and create new jobs by establishing and appropriating funds for a Hawaii start-up business loan program to encourage entrepreneurship and economic diversification and resilience.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to title 13 to be appropriately designated and to read as follows:

"Chapter

hawaii start-up business loan program

§ -1 Definitions. As used in this chapter:

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

"Division" means the business development and support division of the department.

"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, community development financial institutions, and credit unions.

"Program" means the Hawaii start-up business loan program.

"Start-up business" means a business that:

(1) Is registered in the State;

(2) Has been in business for three years or less; and

(3) Fulfills the qualifications established by the division to receive a start-up business loan under the program.

§ -2 Hawaii start-up business loan program. There is established a Hawaii start-up business loan program that shall be administered by the division in coordination with the Hawaii technology development corporation.

§ -3 Functions, powers, and duties of the division; rules. (a) In the performance of and with respect to the functions, powers, and duties vested in the division by this chapter, the division may:

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

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

(b) 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 chapter, for the issuance or continuance of loans; and

(4) Provide for inspection at reasonable hours of the plant, books, and records of an enterprise that has applied for or has been issued a loan, and require the submission of progress and final reports.

§ -4 Direct loans; terms and restrictions. (a) The division may make loans to address start-up business concerns, including the financing of working capital, construction or improvement of facilities, and equipment. The loans pursuant to this section shall not be made in conjunction with any other loans made or grants awarded by the division. Where the loans made by the division are secured, the security may be subordinated to the loans made by other financial institutions; provided that the subordination is required to obtain loans from those institutions. The necessity for and extent of security required in any loan shall be determined by the division.

(b) Loans issued pursuant to this section shall be subject to the following restrictions and limitations:

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

(2) The amount of the loan shall not exceed a total of $50,000;

(3) No loan shall be made for a term exceeding ten years, to begin on the date the loan is awarded and funding is disbursed to the applicant;

(4) No interest shall be charged for the first five years of the ten-year loan period, or the period prior to the middle of a loan period of less than ten years, from the date of the issuance of the loan; provided that the remainder of the loan period shall be at market interest rates;

(5) Upon reaching five years of the ten-year loan period, or the middle of a loan period of less than ten years, negotiations shall commence regarding a payment plan for the remaining loan by the end of the agreed-upon loan period; provided that the agreement shall be finalized within ninety days of the commencement of the negotiations; provided further that a report shall be submitted to the department on the status of the business, use of the loan, and how the loan has contributed to the business' growth;

(6) Any remaining loan balance made to a small business that filed and was approved for bankruptcy protection within ten years of receipt of the loan shall be forgiven; and

(7) No recipient of a loan shall be required to make a personal guarantee as a condition of receiving a loan.

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

§ -5 Hawaii start-up business loan program special fund. (a) There is established in the state treasury the Hawaii start‑up business loan program special fund, into which shall be deposited:

(1) Appropriations made by the legislature to the fund;

(2) Moneys received as repayments of loans; and

(3) Payments of loan interest or fees.

(b) Moneys in the Hawaii start-up business loan program special fund shall be administered by the department and shall be used for providing loans to start-up businesses.

(c) All unexpected and unencumbered moneys remaining in the Hawaii start-up business loan program special fund at the close of each fiscal year shall not lapse to the credit of the general fund.

(d) The department may contract with any financial institution for services, including the day-to-day management of the fund pursuant to this section.

§ -6 Reports. The department shall submit a report to the legislature on the division's activities in administering the program no later than twenty days prior to the convening of each regular session beginning with the regular session of 2026. The report shall include:

(1) A description and uses of loans from the loan program;

(2) A summary of information and analytical data concerning the implementation of the loan program; and

(3) Loan repayments made."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $500,000 or so much thereof as may be necessary for fiscal year 2025-2026 and the same sum or so much thereof as may be necessary for fiscal year 2026-2027 to be deposited into the Hawaii start‑up business loan program special fund established pursuant to section 2 of this Act.

SECTION 4. There is appropriated out of the Hawaii start‑up business loan program special fund the sum of $500,000 or so much thereof as may be necessary for fiscal year 2025-2026 and the same sum or so much thereof as may be necessary for fiscal year 2026-2027 for the purposes of implementing the Hawaii start‑up business loan program and providing loans under the program.

The sums appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 5. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 6. This Act shall take effect on July 1, 2025.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	132
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII