Hawai'i small-business loans on the rise

By Catherine E. Toth
Advertiser Staff Writer

Despite higher loan fees that took effect Oct. 1, Hawai'i's Small Business Administration office said it has guaranteed more loans so far this month than in the same period last year, bucking a trend of fewer loans made in other states.

The loan activity for October follows a record year for the Hawai'i office, which backed 518 loans worth more than $63.6 million for the fiscal year that ended Sept. 30.

Andrew Poepoe, SBA director for the Hawai'i District, would not release the number of loans guaranteed since Oct. 1, saying the information is part of an internal report that has not yet been released by SBA headquarters.

Small-business loans across the country have "dramatically fallen" because of the higher fees, according to New York Rep. Nydia Velazquez, the ranking Democrat on the House Small Business Committee. In a statement, Velazquez blamed Congress' failure to reduce the fees for creating one of the "toughest lending environments for small firms in over a decade."

But in Hawai'i, the increased fees have yet to reduce the number of loans made.

"We're actually seeing an increase, and that may be unusual," said Poepoe. "We're doing quite well so far and we're pleased."

The local office hopes to continue backing loans at its current pace, although the fee hike may result in companies paying more for the amounts they borrow.

"Generally speaking, higher fees mean less SBA-backed loans," Poepoe said.

Fees for SBA's 7(a) loan program went up at the start of the federal fiscal year after Congress failed to complete work on appropriations bills before the end of September. The loan fees were cut following the Sept. 11 terrorists attacks, but that expired on Sept. 30.

The fee hike, which is temporary but could be made permanent by Congress, adds another cost to small businesses already burdened by high insurance premiums and taxes, small-business advocates said. The increased borrowing costs could deter some businesses from seeking SBA-backed loans.

"Anytime there's a fee hike in anything, everybody has to take that into consideration," said Sam Slom, executive director of Small Business Hawai'i.

"When interest rates are low, people go and borrow. But the whole point we try to make is, you shouldn't add debt if you don't have to. ... This is the time to stay liquid, with or without the fee increase."

Bev Harbin, president of the newly created Employers' Chamber of Commerce, said SBA loans are "last-resort loans" because many startup businesses are able to get conventional loans from local banks. As a result, the impact from the fee hike may be minimal.

"I don't see (the fee increase) as having any long-reaching effect on our businesses here," Harbin said.

Congress is expected to decide on funding for the 7(a) loan program and a new fee hike after the elections in November, Poepoe said. For now, SBA is operating without a permanent budget.

Since Congress took no action by the end of last month, the borrower's fee on a 7(a) loan under $150,000 will go from 1 percent to 2 percent of the amount guaranteed by SBA. For a $100,000 loan, borrowers will now have to pay an up-front fee of $1,700, compared with $850 previously.

For companies that are taking out loans to expand their businesses, the higher fee may be worth it, Slom said.

"If that loan is part of an expansion plan, that's a small price to pay, if everything else is working," he said.

Poepoe credits the state's strengthening economy for the record loans made last year by his office.

"The economy really makes a difference, so we're moving along," he said.

Thousands of small businesses are helped each year by the 7(a) and 504, or Certified Development Company, loan programs offered by SBA.

Borrowers typically work through their banks to obtain the SBA loan guarantee on borrowed funds. The maximum loan guarantee for each business or individual is $1 million, which can be used for equipment, land, buildings and working capital.

Last January, SBA was forced to suspend 7(a) lending because the agency ran out of money for the loan program. Demand for loans exceeded the temporary funding provided by Congress.

Reach Catherine E. Toth at 535-8103 or ctoth@honoluluadvertiser.com.