Small Business Loan Options in Hawaii

Not only is Hawaii a beautiful place to start a business, research shows that small businesses in Hawaii traditionally have a higher survival rate during the 24 years analyzed, when compared to the US as a whole. Fewer businesses were started overall, but those that survived lasted longer. 

However, the pandemic hit Hawaii’s economy— which depends heavily on tourism—  hard. 

As the Aloha State struggles to recover, many businesses will continue to need funding beyond pandemic relief programs such as EIDL and the PPP. Business owners looking for funding have numerous choices, and picking the right small business loans will be especially crucial to helping ensure these businesses not only survive this turbulent time, but thrive. 

How a Small Business Loan Can Help Your Hawaii Small Business

There are numerous ways small business financing, grants or other funding can be used successfully to help businesses grow, including:

  • Creating a strong online presence,
  • Purchasing real estate for a store front, manufacturing facility or other commercial facility,
  • Investing in product/inventory
  • Purchasing or upgrading equipment
  • Developing new products
  • Increased staffing

However you plan on using a small business loan, you need to make sure you have the right type of financing. And key to that is understanding what your options are as well as the pros and cons of each.

Types of Small Business Loans to Choose From

There are many different types of small business loans for you to consider, and you should definitely explore all your options. Some of the more widely available loan options include: 

Term loans

If your business is embarking on a growth phase and knows how much you need to borrow, a term loan may be for you. Interest rates may be fixed or variable, and typically payments are specified over the course of 2-5 years, giving the business predictability as they budget for payments. (Some term loans offer longer repayment periods of 5— 25 years.) 

Lines of credit

Lines of credit are a terrific choice for businesses that need periodic working capital infusions. Essentially, a line of capital gives you access to a set amount of money you can borrow, and you can use as much as you need at any time. You pay interest only on the money you borrow. But as soon as you pay off the amount you borrowed and the interest you have access to the funds once again. It’s one of the most popular types of short-term financing used by many small businesses. 

Business credit cards

Just like a personal credit card, most business credit cards have a line of credit built in. But these cards also offer other perks, such as cash back or travel rewards. One of the best parts of a business credit card is that you can usually get approved as long as you have good personal credit scores and enough income to qualify (even if that income doesn’t come from the business.) 

Commercial real estate loans

Not every business is going to need a commercial real estate loan. This is definitely one of the most specialized loan options on this list. For those that do have projects that require acquiring commercial real estate, though, this type of loan will be a great fit. 

Equipment financing or leasing

Many businesses need equipment, ranging from laptops to heavy equipment. While you may not need equipment financing or leasing to afford those purchases, you may still want to consider it because you can preserve capital for other uses, and you may enjoy valuable tax deductions.

Invoice factoring or financing

If your business sells goods or services to another business, invoice factoring or financing may be a great financing option for you. Invoice factoring or financing allows you to sell your invoices to another company at a discounted rate or to use invoices as collateral for financing. This type of financing can be fast, and good credit may not be required, but it can also be more expensive than traditional loans. 

Merchant cash advance

Entrepreneurs who don’t have great credit but are making money in their businesses may want to consider merchant cash advances. You get an advance against future sales based on past sales history and payments are then made on a weekly or daily basis, often right out of future sales. But be careful: costs can be high. 

Microloans 

Great for startups or business owners who are having trouble getting traditional financing, microloans offer smaller amounts of financing— often capping out at $50,000, though not always. There is an SBA Microloan program as well as non-SBA options. Typically these loans are made by nonprofit lenders trying to help spur economic development and help underserved entrepreneurs get financing. As an extra bonus, these loans typically come with some sort of mentoring for small business owners.

Examples of microlenders in Hawaii include the Council for Native Hawaiian Advancement and the ​​Kahiau Rural Business Development Microloan Program

Crowdfunding 

For business owners that are in the startup phase or who may not be able to access traditional capital for whatever reason, crowdfunding can be a great option for getting a loan or capital. Depending on the crowdfunding platform you use, options may include offering either equity or products/rewards to backers. Some platforms such as Kiva.org, offer crowdfunded loans to borrowers. 

SBA Loans

Loans guaranteed by the U.S. Small Business Administration can help small business owners get the capital they need. There are more than ten different SBA loan programs, including SBA microloans, 7(a) loans of up to $2 million, SBA Export Loans, 504 CDC loans and more. If you need an SBA Disaster loan you’ll apply at SBA.gov; otherwise you’ll work with a lender approved to offer these loans.

Small Business Loan Options for Hawaii

You can always start your search for small business financing with local lenders, such as the bank where you have your business accounts. Many business owners find they don’t qualify for traditional financing, however, and need to consider other options. Here are several to consider: 

Line of Credit

Term Loans

Commercial real estate loans

Equipment financing and leasing

Invoice financing

Business cash advance

SBA Loans

Business credit cards

What it Takes to Get Approved for a Small Business Loan

When you fill out a small business loan application, there are several main factors that will often be evaluated:

  • Income
  • Credit scores
  • Time in business 
  • Industry

Income

Lenders try to make sure you can repay the financing, and as a result they look at business revenues. Business bank statements are frequently required, and traditional loans (including many SBA loans) may also require business tax returns and/or financial statements so make sure your bookkeeping is up to date.

Credit 

Good credit helps you qualify for more financing options. Not all lenders require credit checks, but many do. Many require personal credit checks and some require business credit checks. If your credit scores are not where you want them, you can always improve them, but you will have to know what your scores are before you apply.  

If you have poor credit, you will probably want to focus your efforts towards crowdfunding, merchant cash advances, microloans, invoice factoring, and other less traditional financing. 

Age of business

The age of a business, or how long a business has been around, is often looked at by lenders wanting to measure risk. As mentioned earlier, Hawaii small businesses often beat national averages here. Businesses that have been around for over two years are seen as being safer than younger businesses. While you can still get financing before your business hits the two year mark, it may be somewhat harder, so just keep that in mind as you move forward with trying to find small business financing. 

Industry

The industry your small business is in may affect what loans you can get. Certain lenders have “restricted industries” and businesses in those industries won’t qualify. Even if you think you are in an industry that would not be restricted, be sure to check that your business is correctly coded using a SIC or NAICS code on your small business credit reports. You don’t want to miss out on financing because of a mistake. 

How to Choose The Right Loan for Your Hawaii Small Business

Even if you can get a loan it may not be the right fit for you and your business. Choosing the right loan based on your unique business needs is important, and you’ll need to take into account a number of crucial factors:

  1. Amount you need to borrow
  2. How you’ll use the funds
  3. Frequency and length of payments
  4. Interest rate and fees
  5. How payments impact future cash flow
  6. How quickly you can get funding

And, of course, what type of financing you qualify for will be key; you don’t want to waste time pursuing loans your business cannot get. 

Small Business Grants for Hawaii

Grants are a wonderful way for small businesses to get money that doesn’t accrue interest and doesn’t even have to be paid back. However, that also makes them highly desirable and competition for grants can be steep. This means that most businesses should not count on grants as your primary financing option. (Also keep in mind that there are not many startup grants as most go to existing businesses.)

But if you find a small business grant that sounds like a good fit for your business and have the time to go through the process of applying, it may be worthwhile. Someone will win that grant— perhaps it will be you!  Search for grants at Grants.gov, Opengrants.io and Grantwatch.com. Your local library can help as well.

In 2020 and 2021 there were a number of covid relief grants available to small business owners, including EIDL grants and forgivable Paycheck Protection Program loans. Fewer of those types of programs are available now, but when they are offered, you can often find out about them through the organizations listed in the resources section below. 

Additional Resources for Hawaii Small Businesses

Hawaii Small Business Development Center

The SBDC Hawaii chapter offers lots of free help to small business owners. They can help small business owners understand their small business finances, create a business plan, figure out market positioning, acquire another business, and so much more. Outside of free one-on-one mentoring, they also offer workshops and online classes. They have offices on O’ahu (in Honolulu), Kuau’i, Maui as well as the Hawaii Islands of Hilo and Kona. 

Patsy T Mink Center For Business & Leadership

The Patsy T Mink Center For Business & Leadership is designed to help women owned businesses in Hawaii succeed. It is in fact the only Women’s Business Center in Hawaii. To help women they offer legal counseling, business help, a leadership alliance program and more. 

Small Business Administration

The Small Business Administration is a great resource for all small business owners. They offer free resources for small business owners ranging from putting together a business plan to going over your financing options. They can also help you with information about government programs designed for small businesses such as disaster relief funds. Community Navigators can help you find the help you need.

This article was originally written on March 8, 2022.

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