 Yeah, welcome back to Think Tech. Here we are in Community Matters on a given Monday, and we have the pleasure, the delight of having Jane Sawyer on our show. She is the district director of the SBA, the Small Business Administration in Hawaii, a very important person for entrepreneurs and startups and small and medium businesses. Hi, Jane. Welcome to the show. Good morning. How are you, Jay? I'm good. Gosh, Monday. Still recovering from yesterday. Anyway, still recovering from so many things. So we were going to talk about the SBA and its loan program today. Can you describe that because you have some hot news about winners, SBA winners in the loan department. Can you talk about it? You know, I think it's always an interesting and even exciting thing when we talk about what we've been able to do for small businesses that are growing, expanding, developing here in Hawaii through our financing programs. I think a lot of people don't really realize that SBA is the small business bank for the nation. And last year we were talking about we just had some of the statistics come out for our last fiscal year that ended in September. And we kind of the Pacific Business News picked up the list of the top SBA lenders in the Hawaii district and also the top SBA 7A loans. Those are the guaranteed loans that go out to businesses that are starting new things that are growing, expanding. So they they took the top list and they kind of let everybody know what kind of work we've been doing and what kind of small businesses we've been working with over the last year. Well, you know, I practiced business law for a long time here in Honolulu. And the SBA was critically important to so many businesses. What I mean is that somebody would have a bright idea for any kind of business and then he would go to his bank and his bank would say, well, we have to get an SBA guarantee on this because we're not going to fund it unless the SBA guarantee it. So the magic button was the SBA. And so business after business, new incorporation after new incorporation was always focused on the SBA. If the SBA took a look at it and was willing to guarantee it, the bank would fund it. And in large part, may I say, in large part, this was the process that built the state of Hawaii. All those small businesses, all those entrepreneurs, all those startups for years and years in my observation was all focused around the SBA. So we can't stop doing that because if we don't do that, we won't have the same level of business activity by small local businesses, which is what we need for our economy. Yeah. And you know, Jay, one of the things that a lot of people, you know, the program has grown and changed as entrepreneurs and business and the economy has changed over years. And the thing is about SBA loans is that these businesses are the promising business. These are businesses doing well. They're businesses that are looking to really grow and expand. So they're the ones that are bringing the vibrancy to our economy. Sometimes, you know, a lot of people say, oh, they got an SBA loan, you know, there must be a problem. But no, there's not because these these businesses, as I said, are the ones that are promising. They're creating jobs. They're growing. They may be moving into new territory or buying a big building where they've never had one before. So they're contributing so much more to the economy by going into these businesses. You look at some of the names on the list. We've got several attorney's firms. We've got lots of restaurants and hospitality. The Helos Farmers Market is one of the largest loans we made last year. They've been around in an iconic business over in Hilo, but they needed a little help to get the size loan that they needed to make some of the structural improvements that were required of them. So this is a win-win for Hilo, not just for that small business. Just think about all those farmers and the craftsmen that go to that farmers market all the time. It's going to keep them going long into the future and make a big, big difference. Yeah, you know, I mean, back when people talked about Bootstrap and that you know, you developed enough money from selling widgets to have something in the bank for the next step of the business. But you know, American business and especially technology business doesn't doesn't really do that anymore. They require capital or loans. Jane, let's take a short break and we'll be right back after this break with Jane Sawyer, District Director of the SBA here in Harlem. Hi, I'm Rusty Kamori, host of Beyond the Lines. I have a TV show based on my book, which is also called Beyond the Lines. It's about leadership, creating a superior culture of excellence and building winning teams. We are having a fun drive for ThinkTek Hawaii and please, please, please, please help us keep these shows going. Please go on our website, thinktekawaii.com to donate. Thank you. Hi, I am Yukari Kunisue, host of Konnichiwa, Hawaii, ThinkTek Hawaii's Japanese program, broadcasting every Monday from 2 p.m. I usually invite a guest in Japanese language community who does interesting things, and I'd like to share stories with you guys. Please tune in and listen to Konnichiwa, Hawaii. Okay, we're back with Jane Sawyer, District Director of the SBA, talking about loans in Hawaii. You know, the other thing I was going to ask you, Jane, is that, you know, when in the continuum is it appropriate to make a loan? Because, you know, everybody says, well, it's friends, family, and maxing out the credit card for a while, and of course, bootstrapping. But at some point, you need to have capital, funding, I'll call it, that comes from somewhere else. Well, a startup is always going to want, you know, capital investment. He's not going to want to make a loan unless he has to. So when does the company turn to an SBA-guaranteed loan as a loan? And when it does, is it necessarily a guaranteed loan that is guaranteed by the entrepreneurs who are building the company? You know, Jay, yes, yes, and yes. Small businesses always, that's what's going to make them grow, is having the capital. It's great to have the idea. It's great to have a wonderful product, but it just never really works unless there is the money to push everything through. You've got to have money for employees. You've got to have money to buy products, and you have to have money to improve products. You have to have a place to work. So all of those things matter. And yes, you've got to have some skin in the game. So it is going to be some of your own money, whether that is coming from friends or wherever. And SBA guarantees a loan for businesses that may be just short of, say, they don't have full collateral. They haven't quite been in business long enough. The bank is the one who makes the loan decision, but SBA will offer a guarantee depending on the amount of money, the use of the proceeds, a number of things like that. And yes, usually they need financials on business owners who have 20% or more of the business. They have to be willing to put something up and also to guarantee the loan. We don't ever expect, we don't want to have to elect on that loan. We want them to succeed. So we really work with them and with our lenders to make sure it's going to work. The bank looks at their financing proposal much the same way they do any loan. But the borrower, the prospective borrower has to have the experience. They have to have some capital to put in. They have to be able to show the collateral. They have to be somewhat bankable and have good credit. So if you're a small business, even if you're looking for $15,000 or you're looking for $5 million, you have to be prepared to make the right presentation, be reliable and show that you have the capacity, the way you repayment ability. Because the bank doesn't want to take your products, the bank doesn't want to take your house, anything like that. They want you to succeed. Well, what about the dynamic timeline between trying to get capital that is non-recourse capital and a loan like an SBA loan? Do you like to see a certain amount of prior capitalization? Do you come before or after the venture capitalists, either here or more likely in San Francisco or in the mainland? Where does the SBA loan incident fit in the development timeline of the business? Well, we offer many different kinds of products. So it really depends on what kind of capital you're looking for. Sometimes we might direct you to our SBIC, our Small Business Investment Corporation, if you're looking for more venture capital or you are going to have those type of investors. Because a lot of them may not want to be involved with SBA financing when we're looking at debt financing as opposed to equity financing. Because then they become an owner of the company as well. So I would say that we're different or we're before that would happen. Well, you're senior anyway. You're senior in the sense that you take your slice of the pie is always going to be senior to the equity owners of the company. And that's the way loans are. The other thing is you said there were many types and categories of SBA loans. Do SBA loans cover everything? In other words, if I come up with an idea for a widget, a high-tech widget, something really sophisticated, arcane even, and I want to develop it in my little cubicle somewhere and it's unproven. I got to do research and development. I got to get my friends to come around. We're going to do a lot of reading and writing and research. Is that an SBA type of situation? As a startup, I would probably refer that innovator, that inventor to look at our STTR and SBIR program, the Small Business Innovation Research Grants, and go that way if they had an idea that the government might want to invest in and help them develop. So it's a different kind of capital or different ways that that would come together. So I would probably direct them somewhere else. If there are more established business or a unit in a bigger business that could look at more typical debt financing, then I would look at a 7A loan. Or they could look at a 504 loan if they needed, big equipment or they were buying a building or renovating a warehouse that they needed bigger dollars. But that is also something that they're going to have to pay back and they're going to have to be able to show that they have a revenue stream to pay back. So we look at a different kind of financing vehicle for someone who is more in that innovative inventor, creator kind of realm. Can you give us an idea of how long these loans usually last, what kind of interest is usually charged these days, and whether the loans are secured or not by real property or other assets? Most of the 7A guaranteed loans can have a term anywhere from two to five years. An SBA guarantee will help you extend the term of the loan, but it's usually the life of the asset. So the bank sets up a lot of the terms within criteria that is set up by the SBA. Sometimes there are some guarantee fees that are paid, there are some servicing fees, so an SBA loan may not be the cheapest financing that you would find available, but in some cases it would be the most readily available financing for a newer business, a newer idea, an expansion project or something like that. And usually you can only charge a few points above what the interest rate is. Depends again on the size of the loan and the term of the loan. So you have your parameters and the bank has to follow your parameters if you are going to have a guarantee. You know, I went to your program, the fact ThinkTech was, I guess we got an award in that program. Your winner, yes. It was very nice of the SBA and the community around the SBA to do that for us. And this was at the, I want to say the Hawaii Prince, am I right about that? Right, Hawaii Prince Hotel. We had about 28 winners. It was a great program and we recognize the top small business person for the state of Hawaii and then also for each of the counties. We have the exporter of the year. We have the entrepreneurial success. Somebody who started as a small business and here in Hawaii and grew to be a large business. I mean 97% of our businesses are small here in Hawaii. So it's quite an accomplishment to kind of outgrow the government size standards and become a large business here, either by the number of employees or our annual revenue. Well, that takes me to my next question I was going to ask you about, you know, at that function, at that event in the Hawaii Prince, the SBA event, that I met some very interesting and impressive people who were graduates of the SBA. In other words, they got a leg up using SBA products and they have come to a point in their business dynamic, their business development, where they didn't, they really qualify or need the SBA anymore. That they were, you know, beyond, they were no longer a small or medium-sized business that would be where an SBA guaranteed loan would be appropriate. What is that point? What is that point, Jane? Where do you become a graduate and not need the SBA anymore? You know, that's a great position for so many businesses to be in and some of those companies are like Pictures Plus who had several SBA loans along the way that they started to, you know, the business grew and developed. But it's a factor of the SBA, the federal government size standards and the national industrial classification system codes that like 14 pages of six-digit numbers that tell you based on the number of employees or the annual revenues that your business is now considered large. And it's very, it can be very, very complicated. So these, these organizations, Latour Bakery, Tan Lam started his business as Balay Sandwich Shop in Chinatown with an SBA loan and has grown and grown and now has Latour out on Nimitz and they're a big supplier for whole foods and do, you know, run a couple of cafes and been very, very, very successful from hard, diligent and very, very creative, determined work. So they were one of the Hall of Famers, we recognized last year, but they're now big enough that they, again, don't need to turn around and they have a lot of depth and credit and things like that where they can continue to grow. But a lot of companies continue to come back to SBA to finance expansions or new buildings and different things like that. It's a very accomplished group in our SBA graduates and our SBA client list that you see around. I met some of the men, one that sticks in my mind is a couple, husband and wife that started a helicopter company, a helicopter tour company, I think it was in Maui, and they were your graduates. They were very impressive and they had been very successful over the years thanks to these SBA products. Yeah, they've run a tour company on Maui and they've been doing it for years and years and years. Very reliable, very successful, created a lot of jobs over there and really have nurtured that industry carefully and successfully. So, and they started with what some of their first equipment came with SBA financing. I think it's great that you stay in touch and that it becomes a kind of extended family. I'm wondering also though while the loan is in place, in that two to five year period, do you have reporting requirements from your borrowers, your clientele, so to speak? Do they have to file with you? They have to keep you current? Do you have an ongoing information relationship with them? We may be in touch with them, particularly if we've worked with them to help connect them with their lender, but the bank does, as I said, the bank does the credit decision. They evaluate the proposal based on criteria that we agree to and then the bank does the servicing and the collection. So, most of their payments or any modifications on the loans, any refinance that might come up because that happens, it's pretty much a normal business loan, but we've just given the bank a little bit extra confidence that if something should go wrong, that we're going to stand next to that borrower and the bank to make good on our portion of any debt. So, it minimizes the risk for the bank with somebody who's taking their business in a new direction or growing their business, having a new restaurant, buying a new helicopter, building new baking ovens, buying a new fleet of cars. And I think you see that on the list of loans from 2019, a new brick oven pizza, a couple of investment companies, lumber companies, other tours, Captain Zodiac, a spa. No, so there are a couple of franchises in there, so we work with all sorts of businesses and entrepreneurs who are serious about growing their businesses and helping keep the economy growing here. Yeah, very important to Hawaii economy. I can tell you that from my own experience and, as I said, responsible for the growth of the state in the past, well, since well since they stayed with it anyway. So, my question though is, you know, when you make this list, how do you establish the list? How do you determine who the winners are? Can you give us some samples of winners and how they got on the list and what it means to get on the list? Because I would like people to understand, you know, how that works. But the SBA loan list is actually factual data that can be pulled. It's public information, so the researcher Lucy over at the Pacific Business News looks at the data and determines who those guys are. And I would say, yeah, if you've managed to get a $2 million loan, you're probably a winner in business and hopefully will be one of our SBA small business award winners in the future. The SBA small business awards that we give out during National Small Business Week, we've been doing this every year for like 35 years, 40 years now. But there's a nomination process that starts in September and people can self- nominate. We're looking for, particularly among businesses, we're looking for somebody who has staying power, has been in business for some time. We say a minimum of three years, but most of our winners have a track record of 10 or 11 years. We look for growth in annual revenues. We look growth in employees. We look at innovation in their product services or, you know, techniques, their business model. We look at what they give back to the community. And then I have the nominations come in. We take a look at them to make sure they're really eligible. And then we have a team of judges. They're usually about a dozen judges who are bankers, business professionals, small business owners, previous winners. And they come in and independently review and score these nominations. So we're just, we've just come up with our 2020 list and we'll be giving out awards in May. But we're just, today I'm starting to notify the winners to, to let them know that they've been successful. We have winners from across the state of Hawaii, but they're all just, you know, great and inspiring stories about how they accomplished what they did, how they dealt with adversity, how they bootstrapped it. That's instructive for everybody else, you know, the next generation of businesses and entrepreneurs. I assume you cannot tell us who's on the list for 2020. I can't do that right now. By May, you can tell us how many were there. There were about 20, 24. We look at, as I said, you know, the small business persons of the year, we look at advocates like yourself. I think, I think tech was selected as a media advocate for telling the story about small businesses. We look at financial services advocates, media advocates, those people in the community who help small businesses develop the capacity to succeed and get the message out about the contributions that small businesses are making to the community. It's leadership, you know? I mean, it's like they say that in the venture capital world, in order for a given community to be invigorated, you have to have one big success, because every success encourages, you know, other entrepreneurs to become more enthusiastic, be willing to take the risk, see the benefit and the value of doing that and proceeding with the business. So that's why, you know, your May program, your list of winning loans is so important. And I may add that when I went to the program last May, there were a ton of people there. There were hundreds of people. It's always very exciting. It's one of the favorite things. You know, besides helping people get the loans and really realize their dreams, you know, that's one of the fun things too, is to see how we've helped over the years and how people have kind of paid it forward. They've kept it going. And, you know, there have been big island candies and old line of Luau and Pictures Plus. It was very exciting. You know, it's just so inspiring to go and see so many different types of businesses that have done so many really fun things. So, you know, we live in a time, I would call it transformational, in so many ways, including, especially including government, SBA, we cannot forget, is a government agency. I'm making a guess here. It's part of the Department of Commerce. Am I right about that? Nope. Nope. That one's written. SBA is an independent agency. So we're the little guy, but we're standing next to not under a Department of Commerce. Isn't that funny? Yeah. Well, so here's the question. That's interesting, the little guy and the big guy. So the interesting point, I think, is where is this going to go? Because the government is in transition, if not transformation these days, lots of things are changing. Some parts of the government are growing, other parts are shrinking. And without itemizing all of them or trying to figure out why, it does suggest the possibility that the SBA may change in the future. Is there anything you could tell us about where you stand in terms of the way government, federal government is developing these days? I think the one thing that SBA has on so many other agencies is that we've become, we're like the entrepreneurs we serve. We have to be pretty nimble. We have changed a lot in the way that we deliver products and services. We work with the community as kind of delivering programs as a public-private partnership. We don't loan for most of our programs. We don't make direct loans anymore. Our partners are the banks and the credit unions and the community lenders out there who have mechanisms for marketing loans and working with small businesses. We make it easier for them to lend to small businesses who might not otherwise find capital. So that's our job. It's to try and make sure that we are helping those small businesses compete with bigger businesses and more stable companies so that we are helping new businesses start, grow, and prosper. We're in the capital access area, but we also work in the government contracting area to make sure that small businesses have an opportunity to compete for government contracts because Uncle Sam is the biggest customer in the world. And he's a really big customer in Hawaii, for sure. Yes. In any location, to have the opportunity to contract or subcontract on a federal contract is going to create more jobs, create stability locally, and help small businesses grow to become larger businesses. A lot of the contractors, a lot of the IT companies around Hawaii and beyond, have started and grown here through SBA assistance with contracting. So SBA remains very important going forward. SBA is a facilitator and an uncle. SBA is our business uncle. And Jane, that means you're our business auntie. Jane Sawyer, the director of the SBA Hawaii. Thank you much for coming on the show today. And we'll look forward to seeing you on Adventures in Business, which plays on Thursday at, I want to say, 11 o'clock in the morning here on a regular basis. Thank you so much, Jane, at all points. Aloha. Okay, thanks, Jane. Aloha.