Ka Wai Ola - Office of Hawaiian Affairs, Volume 11, Number 6, 1 June 1994 — Looking ahead: the Native Hawaiian Revolving Loan Fund makes plans for the future [ARTICLE]

Looking ahead: the Native Hawaiian Revolving Loan Fund makes plans for the future

by Patrick Johnston In September 1989 a security service called Continental Services received a medium-sized loan to start up a business providing guards for government and private clients. The loan was the first of nearly 200 approved by the Native Hawaiian Revolving Loan Fund Board since its creation five years ago. As of Apiil 30, 1994, a total of $6,294,157 has been used to help finance native Hawaiian businesses. The loan fund received its initial funding from the Administration for Native Americans. In 1992 the fund was reauthorized for three more years the first year funded by ANA with matching funds lfom OHA.

The Native Hawaiian Revolving Loan Fund has proven to be an effective way of providing needed capital for native Hawaiian businesses that would not have been available using regular commercial lending institutions. In recognition of its achievements the loan fund was named OHA's Project of the Year for 1993-4 and a number of awards have been presented to individuals working for the loan fund by the Small Business Association (SBA). (See story page 11.) As the project moves forw ard. a number of changes are in the works that will likely alter and expand its

operations. One change might be to lengthen the terms of the loan lfom five to ten years. OHA's eeonomie development officer Linda Colbum explains, "The monthly interest on a big loan is high for a five year term. But originally the loan fund was a five-year demonstration project so the length of the loan term was five years." As it is likely the project will be continuing well into the future she feels now is a good time to lengthen the terms of the loan. Colburn would also like to see the interest rates for loans increased. She says because the interest rate for loans offered by the revolving loan fund is low compared to rates at commercial lenders this has attracted many people to the loan fund who

could have been accepted at the banks. Raising the rate would encourage these people to look elsewhere for funds, saving the loan review board considerable time. (Presently the rate is set two points below the six-month T-bill rate, making the cost of borrowing money through the loan fund only 1.5-2 percent.) Also, current rates are lower than what was envisioned when the loan fund was introduced and do not generate enough ineome to supp>ort the program. Higher rates would lower

the amount that OHA would have to absorb. The primary problem for native Hawaiians businesses is, according to Colbum, getting capital, not making monthly payments. Raising rates, while, at the same time extending the loan term, wou!d not significantly increase the amount the borrower would pay on a monthly basis. "If the program is to become selfsufficient, then we have to generate enough revenues to defray costs,"

explains Colbum. OHA's eeonomie development division is also interested in developing strategies to address the needs of other segments of the Hawaiian community that might have an even more difficult time securing loans. One strategy being tested is the introduction of a microloan pilot project to provide small loans for participants in recent aquaculture workshops. (See story page 11.) Commercial lenders generally do

not loan small amounts of money to startup ventures like backyard aquaculture businesses, citing the low revenues generated by the loan and the uncertainty over the success of the project. However, recognizing the value of these small native Hawaiian businesses, OHA wants to give them a ehanee. "We want to maximize Hawaiian entrepreneurs in all their forms," Colbum says.