Hawaii law backs small business loans through lender reserves

The Department of Business, Economic Development, and Tourism runs a program that may share loan losses with participating lenders. The program serves for-profit small businesses authorized to operate in Hawaii, with their main operations in the state and size standards set by the department. Lender and borrower participation is voluntary. Lenders do not have to make loans or change prudent lending standards. The law took effect July 1, 2026.

The department may require borrower fees and provide matching money for lender-held loan loss reserves. These reserve arrangements apply to qualifying small business micro-loans made through the program. A required borrower fee may be no more than 1% of the loan principal. The department sets the amount of any matching contribution. Reserve money may only cover losses on qualifying loans under department guidelines.

The department administers the program, receives program funding, and reports its activity to the legislature. The department submits its report to the Hawaii legislature. The law sets aside $1.5 million, or as much as needed, from the program’s special fund for fiscal year 2026–2027. The department must submit its report no later than 20 days before each regular legislative session. The funding is for fiscal year 2026–2027.