FAQ for Participation Loans
What is a participation loan? The Agricultural Loan Division and a private lender both provide funds and “share” the loan to a qualified borrower. The Division can provide up to 90% of the principal loan amount. For example:
|Participating Lenders||Loan Funds||Collateral Share|
|Agricultural Loan Division||$40,000||40%|
After approval of the private lender’s request, a “Participation Loan Approval Conditions” and a “Participation Agreement” are executed by and between the private lender and the Division. The agreements detail the terms, conditions and obligations for the participation. Collateral is held jointly and shared in proportion to loan funds. The private lender holds collateral documents.
Who is a private lender? A private lender includes banks, savings & loan associations, credit unions, mortgage companies and other qualified companies whose business includes the making of loans within the State of Hawaii.
What are the allowable interest rates that can be charged? On its share of a participation loan, a private lender cannot charge more than the sum of 2% over the lowest rate of interest charged by all state or national banks authorized to accept or hold deposits in the State of Hawaii, on unsecured short term loans made to borrowers with the highest credit rating with those banks. The Division’s interest rate is fixed at 1% below the prime rate, or at 7 ½% per annum, whichever is less. Interest rates are set on January 1st and July 1st of each year.
Can fees be charged? The private lender may charge the borrower fees, however, fees cannot be paid through the use of loan funds. Normally, the Division does not charge any fees with the exception of those directly incurred by the borrower. This may include but is not limited to, document review, recordation, title searches, appraisals, etc.
Who services the loan? During the loan application and underwriting period, the Division’s staff is available to provide assistance to the private lender in completing the loan package. After the approval process, through loan closing and disbursement, the private lender coordinates with the borrower and keeps the Division advised. Disbursements are made in proportion to the participation share. Installment payments are collected and processed by the private lender, and remits to the Division, its share of payment. Field visits are routinely conducted once or twice a year and are made jointly with the private lender and Division staff. A private lender should contact the Division prior to seeking and securing approvals for changes or modifications to a participation loan. Changes and/or modifications to any loan will require separate concurrence by the Division and final approval by the Chairperson, Board of Agriculture.
Can a private lender’s share of a participation loan be insured or guaranteed by the Agricultural Loan Division? Yes. The Division may guarantee or insure up to 90% of the private lender’s share of a participation loan.
What is the approval process? After completing the loan package, the private lender may seek the necessary approvals from its institution. Final approval at the Department of Agriculture level requires approval by the Board of Agriculture. Normally, the Board conducts meetings once a month. Due to sunshine laws, all submissions to the Board are due approximately 3 weeks prior to the scheduled meeting.
It is advisable that a private lender make submissions well in advance of the 3 week deadline as the Division will need to make a final review of the package before making a recommendation and presentation to the Board. The loan package should include the private lender’s analysis, with all supporting documentation required by the Division. The Division may accept the private lender’s application forms and other documents provided that they contain all information required by the Division. As part of the package, the private lender must include a letter requesting the Division’s participation and state reasons why the private lender is unable to solely fund the loan.
What kinds of loans can a private lender participate in? Loans can be made to entities meeting the definition, general eligibility and other requirements of a:
- Qualified Farmer
- New Farmer
- Farmers Cooperatives and Corporations
- Food Manufacturer
- Qualified Aquaculturist
For more information, call or visit one of our offices.
Oahu: Department of Agriculture
1428 South King Street, Honolulu, Hawaii 96813
Telephone: (808) 973-9460
Hawaii: Department of Agriculture
16 East Lanikaula Street, Hilo, Hawaii 96720
Telephone: (808) 974-4140
Kona Civic Center
82-6130 Mamalahoa Highway, Captain Cook, Hawaii 96704
Telephone: (808) 323-7591
Kauai: Telephone: 274-3141, extension 39460 (Toll Free)
Maui: Telephone: 984-2400, extension 39460 (Toll Free)
Molokai: Telephone: 1-800-468-4644, extension 39460 (Toll Free)