Small Business Loans in Hawaii: What You Need to Know

Gather all essential business formation documents including Articles of Organization/Incorporation, Operating Agreement/Bylaws, EIN documentation, and any amendments. Lenders need these to verify your business's legal existence and structure. In Hawaii, ensure you have your DCCA Business Registration Certificate which confirms your good standing with the state.

Confirm all Hawaii business licenses are current, including your General Excise Tax (GET) license from the Hawaii Department of Taxation and any industry-specific permits. Hawaii requires most businesses to have a GET license, and lenders will verify compliance with state licensing requirements before approving loans.

Compile comprehensive business financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years. For newer businesses, prepare year-to-date financials. Hawaii lenders typically require more detailed financial documentation than mainland lenders due to the unique island economy.

Collect business tax returns for the past 2-3 years and personal tax returns if you're a sole proprietor or if personal guarantees will be required. Include Hawaii General Excise Tax filings, which are unique to the state and demonstrate compliance with Hawaii's tax requirements.

Develop a detailed business plan that includes market analysis, competitive positioning, growth projections, and how the loan will be used. For Hawaii businesses, address any unique aspects of operating in an island economy, tourism impacts, and shipping/supply chain considerations that mainland businesses don't face.

Generate a current accounts receivable aging report showing outstanding customer payments categorized by time periods (current, 30, 60, 90+ days). This demonstrates your business's cash flow health and collection practices to lenders.

Gather all business insurance policies including general liability, property, professional liability, workers' compensation, and any industry-specific coverage. Hawaii has specific insurance requirements for businesses, including prepaid healthcare for employees working 20+ hours weekly, which differs from mainland requirements.

Carefully review the loan agreement, paying special attention to interest rates, repayment terms, prepayment penalties, default provisions, and covenants. Hawaii follows federal regulations but may have state-specific disclosure requirements. Consider having an attorney review before signing, especially for loans over $100,000.

Examine the promissory note which is your written promise to repay the loan. Verify the principal amount, interest rate, payment schedule, and maturity date match what was verbally discussed. In Hawaii, ensure compliance with HRS Chapter 478, which governs interest rates and usury laws specific to the state.

Determine if a personal guarantee is required for the loan. This makes you personally liable for the debt if your business cannot pay. In Hawaii, lenders almost always require personal guarantees for small business loans due to the higher risk profile of island businesses. Understand exactly what assets could be at risk.

Analyze the security agreement which identifies what business assets will serve as collateral for the loan. Ensure the description of collateral is accurate and that you understand which assets you're pledging. Hawaii follows the Uniform Commercial Code (UCC) but may have state-specific requirements.

Learn about UCC (Uniform Commercial Code) filings that the lender will make to publicly record their security interest in your business assets. In Hawaii, these are filed with the Bureau of Conveyances. Be aware that these filings may affect your ability to use the same assets as collateral for future financing.

Register with Hawaii Compliance Express (HCE) if seeking loans from government sources or if your lender requires it. HCE provides proof that your business is compliant with state tax, labor, and business registration requirements. This is unique to Hawaii and often required for state-backed loan programs.

If borrowing from a non-bank lender, verify they comply with Hawaii's Small Loan Act (HRS Chapter 480F) which regulates small loans under $25,000. This protects borrowers from predatory lending practices. Lenders must be licensed by the Division of Financial Institutions if offering certain types of loans.

Confirm your lender is properly licensed to operate in Hawaii by checking with the Department of Commerce and Consumer Affairs Division of Financial Institutions. Non-bank lenders must have specific licenses to operate legally in the state.

Familiarize yourself with Hawaii's disclosure requirements for business loans, which may differ from mainland standards. Hawaii has consumer protection laws that sometimes extend to small business borrowers, particularly sole proprietors and very small businesses.

Create a system to monitor ongoing compliance with loan covenants and reporting requirements. Set calendar reminders for financial reporting deadlines, insurance renewal dates, and other periodic requirements specified in your loan documents.

Understand that in Hawaii, unlike most states, you may need to pay General Excise Tax (GET) on certain loan-related transactions. Consult with a Hawaii tax professional to determine if your loan structure has any GET implications, as this tax is unique to Hawaii and often overlooked.