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Sunday, September 14, 2014         

AKAMAI MONEY


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Agency’s loan plans offer longer terms at fixed rates


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QUESTION: I’m a small-business owner, and I want to buy a factory and renovate it for my purposes. Can HEDCO help me finance this?

ANSWER: The program finances the acquisition of fixed assets with an useful life of at least 10 years, such as commercial real property for owner-users, renovations, leasehold improvements, equipment and machinery, marine facilities and vessels, and green energy systems, such as photovoltaic.

If your business meets the size criteria, and your business will occupy at least 51 percent of the total usable square footage, then you meet the basic eligibility requirements.

Q: HEDCO can finance up to 40 percent of a project, with a bank financing 50 percent and the business owner putting up 10 percent. What’s the advantage of working with HEDCO instead of just getting the full loan from a bank?

A: The advantages of the HEDCO 504 loan program are a lower required down payment from 10 percent to 20 percent of the total project cost; long terms of 10 and 20 years; and competitive rates that are fixed for the life of the 504 loan. Your monthly payment never increases.

We partner with a lender to provide the small business with the 504 loan financing option.

During difficult economic times the risk in lending rises, which makes it more difficult for small businesses to borrow. The 504 program helps mitigate risks in several ways. It enables the lender to reduce its credit risk by lending a smaller amount while providing it with better collateral protection since it will have a priority lien position on the asset being financed. The borrower’s interest rate risk is reduced because the interest rate on the SBA portion of the financing is fixed for the term of the 504 loan. So while the interest rate environment might eventually increase, the rate on a 504 loan will not. Additionally, by having to make a down payment of only 10 percent the business is able to conserve its cash for working capital needs, which is critical to a small business’s survival.

Q: What are the terms on a HEDCO business loan?

A: The April effective interest rate, which includes all program fees, was 5.9 percent for the 20-year term and 4.9 percent for the 10-year term. Those are great rates.

Q: What companies in Hawaii have used HEDCO to expand their businesses?

A:  HEDCO LDC has assisted hundreds of small business in Hawaii and Guam ranging from mom-and-pop operations to larger businesses such as Big Island Mexican Foods, Pacific Mills Inc., Baba’s Auto Gloss LLC, Wilson Homecare, Maui Linen, Manoa Cottages, the Shrimp Station, Superb Sushi and hundreds more.

Small businesses can use the program several times. The only limitation is a ceiling of $5 million ($5.5 million for manufacturing and green energy projects) that can be borrowed by a small business at any one time.

Q: How many loans has HEDCO made in Hawaii, and for how much?

A:  Since its inception in 1981, HEDCO has assisted 430 small business with a total of $196 million in direct funding via the 504 loan program. In fiscal year 2010, 40 small businesses achieved their dream of owning their own commercial property or new equipment/machinery, receiving a total of $24 million in funding with HEDCO’s assistance.

Q: What is the goal of HEDCO?

A: HEDCO’s mission is to promote economic development in the areas we serve. Achieving that mission is accomplished in part by disseminating information on the benefits of the SBA 504 loan program within the small-business community.

As an added benefit to our borrowers, HEDCO covers part of the small business’s out-of-pocket closing costs related to the SBA portion of the financing. Last year HEDCO, at its own expense, paid $109,000 to cover such costs for its borrowers.

We would also like to see more small businesses that are planning to install photovoltaic systems take advantage of this program. Since such systems have a useful life of 25-plus years, we’re able to provide a 20-year fixed-rate term.

Q: I see you are now offering a new debt refinance program. What is the purpose of that?

A:  There are two debt refinance programs. The purpose of these programs is to assist small businesses during this tough economic environment by refinancing existing debt that may be maturing or has a higher interest rate.  

Q: If I want to find out more about whether I can benefit from a HEDCO loan, what’s the first step?

A: You should contact your lender to discuss your plans and financing need. Let them know you want to consider the HEDCO-SBA 504 loan program as a financing option. We also recommend you visit our website at www.hedcoldc.com to find out more about the program or contact David Perkins, Lori Hiramatsu or Kali Tarnay at 521-6502.






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