HB 2583

HOUSE OF REPRESENTATIVES
H.B. NO.
2583
THIRTY-THIRD LEGISLATURE, 2026
H.D. 1
STATE OF HAWAII
S.D. 1
C.D. 1
A BILL FOR AN ACT
RELATING TO ECONOMIC DEVELOPMENT.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
���� SECTION
1.� The legislature finds that access to
affordable, right-sized credit is essential for small business formation,
survival, and expansion in the State's geographically isolated and high-cost
economy.� Small businesses, particularly
startups, sole proprietors, and very small employers, depend on smaller-dollar
loans to finance working capital, equipment, inventory, leasehold improvements,
and early operating expenses.
���� The legislature further finds that publicly
available data from the United States Small Business Administration (SBA)
indicates that a substantial share of SBA-backed loans made to Hawaii
businesses are originated by lenders headquartered outside the State, rather
than by Hawaii-based banks and community lenders.� This pattern reflects limited local capacity
for smaller-dollar lending and constrained lender risk tolerance in the absence
of credit enhancement tools.
���� The legislature additionally finds that
when small business credit is primarily originated by out-of-state lenders,
interest payments, fees, and servicing revenues are more likely to leave the
State, reducing the local economic multiplier effect that would otherwise occur
if those dollars were retained and reinvested through local financial
institutions.� Over time, this dynamic
contributes to capital leakage from the State and weakens the State's locally
rooted small business financing ecosystem.
���� The legislature also finds that limited
availability of locally delivered micro-loans increases financial risk for
Hawaii entrepreneurs.� In the absence of
sufficient micro‑lending capacity among local lenders, small businesses
may be forced to rely on higher-cost or riskier credit products, accept less
favorable loan terms, or delay business formation, expansion, and hiring
altogether.� These constraints
disproportionately affect early-stage businesses, rural communities, and
neighbor islands.
���� The legislature recognizes that other
states have successfully addressed similar capital access challenges through
state-supported loan loss reserve and credit enhancement programs that share
risk with lenders while leveraging private capital.� In particular:
���� (1)� California
operates a long-standing small business capital access program that establishes
loan loss reserve accounts funded by borrower and lender contributions matched
by the state, enabling lenders to extend credit to small businesses that would
not otherwise qualify on comparable terms;
���� (2)� Colorado
administers a credit reserve program that uses borrower fees and state matching
contributions to capitalize lender-held reserve accounts that absorb first
losses on enrolled loans, expanding access to smaller-dollar loans while
preserving prudent underwriting standards and voluntary participation; and
���� (3)� Florida
operates a state capital access program that similarly establishes loan loss
reserve accounts through borrower and lender contributions matched by the
state,
demonstrating
that credit enhancement models can be successfully deployed in tourism-driven,
small-business-dominated economies with significant seasonal cash-flow
variability, conditions that closely mirror Hawaii's economic structure.
���� The legislature further finds that these
programs are effective because they are market-based, voluntary, and fiscally
disciplined, leveraging private lending rather than replacing it and expanding
access to credit without imposing mandates on lenders.
���� Accordingly, the purpose of this Act is to
strengthen the State's small business financing ecosystem by establishing a
state-supported micro-lending credit enhancement program that expands local
lending capacity, retains more financial activity within the State, reduces
reliance on higher-risk borrowing options, and improves access to affordable,
appropriately sized capital for entrepreneurs in the State.
���� SECTION 2.�
The Hawaii Revised Statutes is amended by adding a new chapter to be
appropriately designated and to read as follows:
"Chapter
hawaii
Micro-Lending credit enhancement program
���� �   -1� Definitions.� As used in this chapter:
���� "Credit enhancement" means a loan
loss reserve, first-loss reserve, partial guarantee, or other risk-sharing
mechanism approved by the department to encourage lending that would not
otherwise occur on comparable terms.
���� "Department" means the department
of business, economic development, and tourism.
���� "Eligible lender" means a state-
or federally-chartered bank, savings bank, credit union, certified community
development financial institution, or other financing entity approved by the
department that originates and services business loans in the State.
���� "Micro-loan" has the same meaning
as "microloan" in title 13 Code of Federal Regulations section
120.701.
���� "Program" means the Hawaii
micro-lending credit enhancement program established pursuant to this chapter.
���� "Qualified borrower" means a
for-profit small business that:
���� (1)� Is
authorized to do business in the State;
���� (2)� Maintains
its primary operations in the State; and
���� (3)� Meets
size standards as determined by the department by rule.
���� �   -2� Hawaii micro-lending credit enhancement
program; established.� (a)� There is established within the department
the Hawaii micro-lending credit enhancement program to encourage eligible
lenders to increase the availability of micro-loans to qualified borrowers
through state-supported credit enhancement.
���� (b)�
Lender and borrower participation in the program shall be
voluntary.� Nothing in this chapter shall
be construed to require an eligible lender to make any loan or alter prudent
underwriting standards.
���� �   -3� Credit enhancement mechanisms; loan loss
reserves.� (a)� The department may provide credit enhancement
through one or more of the following mechanisms:
���� (1)� Loan
loss reserve accounts established with participating eligible lenders;
���� (2)� First-loss
reserve arrangements that absorb a portion of initial losses on qualified
micro-loans; or
���� (3)� Other
risk-sharing mechanisms approved by the department that are consistent with
recognized state small business credit enhancement practices.
���� (b)�
The department may require, as a condition of participation in the
program, that:
���� (1)� A
qualified borrower pay a fee of up to one per cent of the micro-loan principal,
which shall be deposited into a lender-held loan loss reserve account; and
���� (2)� The
program provide a matching contribution, in an amount determined by the
department, deposited into the same reserve account.
���� (c)�
Funds in a loan loss reserve account shall be used solely to cover
losses on qualified micro-loans in accordance with program guidelines
established by the department.
���� �   -4� Eligible uses; exclusions.� (a)�
Qualified micro‑loans may be used for standard business purposes,
including working capital, equipment, inventory, leasehold improvements, and
other uses approved by the department.
���� (b)�
The department shall establish by rule any exclusions necessary to
protect the integrity of the program.
���� �   -5� Administration; rules; contracts.� (a)�
The department shall administer the program and may adopt rules pursuant
to chapter 91 to implement this chapter.
���� (b)�
The department may contract with a qualified third‑party program
administrator to support lender enrollment, reserve administration, compliance
monitoring, and reporting.
���� �   -6� Hawaii micro-lending credit enhancement
special fund.� (a)� There is established in the state treasury
the Hawaii micro-lending credit enhancement special fund.
���� (b)�
The following shall be deposited into the special fund:
���� (1)� Moneys
received from the federal government;
���� (2)� Grants,
awards, donations, gifts, transfers, or money derived from private sources;
���� (3)� Moneys
received pursuant to the program; and
���� (4)� Interest
earned or accrued on moneys in the special fund.
���� (c)�
Moneys in the special fund may be expended by the department for credit
enhancement, program administration, and reporting.
���� �   -7� Reporting.� No later than twenty days prior to the
convening of each regular session, the department shall submit a report to the
legislature that details the following:
���� (1)� The
number and dollar amount of micro-loans supported pursuant to this chapter;
���� (2)� The
lenders participating in the program;
���� (3)� The
geographic distribution of loans under the program;
���� (4)� The
reserve contributions, claims, and recoveries under the program; and
���� (5)� The
estimated private capital leveraged per state dollar under the program."
���� SECTION 3.�
There is appropriated out of the Hawaii micro‑lending credit
enhancement special fund the sum of $1,500,000 or so much thereof as may be
necessary for fiscal year 2026-2027 for the Hawaii micro-lending credit
enhancement program.
���� The sum appropriated shall be expended by
the department of business, economic development, and tourism for the purposes
of this Act.
���� SECTION 4.�
This Act shall take effect on July 1, 2026.
Report Title:
DBEDT; Hawaii
Micro-Lending Credit Enhancement Program; Credit Enhancement; Loan Loss
Reserves; Small Businesses; Special Fund; Reports; Appropriation
Description:
Establishes the Hawaii Micro-Lending Credit Enhancement
Program within the Department of Business, Economic Development, and Tourism to
expand micro-lending capacity by providing state‑funded loan loss
reserves or other credit enhancement that absorbs first losses on qualified
micro-loans made by participating lenders to Hawaii small businesses.� Allows borrower fees and state matching
contributions to capitalize lender-held loan loss reserve accounts.� Establishes the Hawaii Micro-Lending Credit
Enhancement Special Fund.� Requires annual
reports to the Legislature.� Appropriates
funds out of the Special Fund.� (CD1)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.