HAR §15-2-3. Purpose of loans

(a) The department may make loans to small business concerns for the purpose of financing plant construction, conversion, expansion, acquisition of land for expansion, acquisition of equipment, machinery, supplies, or materials, or for the supplying of working capital. (b) Loans shall not be granted in any of the following instances: (1) Where the direct or indirect purpose or result of granting the loan would be to: (A) Pay off a creditor or creditors of the applicant who are inadequately secured and are in a position to sustain a loss; or (B) Provide funds, directly or indirectly, for payment, distribution, or as a loan to owners, partners, or share- holders of the applicant's business, except as ordinary compensation for services rendered; or (C) Refund a debt owed to a small business investment company; or (D) Replenish funds heretofore used for any of the above purposes; (2) Where the purpose of the applicant in applying for a loan is to effect a change in ownership of a business, unless the change will promote the sound development or preserve the existence of the business; (3) Where the loan will provide or free funds for speculation in any kind of property, real or personal, tangible or intangible; (4) Where the applicant is an eleemosynary institution or other nonprofit enterprise; provided that this provision shall not bar a loan to a local development company if it carries on a business activity and the purpose of such activity is to obtain pecuniary benefit for its members in the operation of their otherwise eligible small business concerns; (5) Where the purpose of the loan is to finance the construction, acquisition, conversion, or operation of recreational or amusement facilities, unless the facilities contribute to the general well-being of the public and are property licensed by the State or local authority; (6) Where the applicant is engaged in the creation, origination, expression, dissemination, propagation, or distribution of ideas, values, thoughts, opinions or similar intellectual property, regardless of medium, form, or content. Financial assistance to such applicants is barred in order to avoid government interference, or the appearance thereof, with the constitutionally protected freedoms of speech and press; provided that nothing herein shall preclude financial assistance to any otherwise eligible applicant engaged in one or more of the following activities: (A) Printing: firms solely engaged in commercial or job printing, if there is no common ownership with any concern ineligible under this section and the printer has no direct financial interest in the commercial success of the material so produced; (B) Publishing: publishers of shoppers' newspapers or circulars consisting of advertising material only, without editorial, narrative or filler material; (C) Advertising and technical material production: firms producing advertisements and promotional material for a client’s goods or services, or technical or instructional material relating to such goods or services; (D) Reproduction: firms providing motion picture, videotape, sound recording, or theatrical technical production facilities, or the technical reproduction of motion picture, videotape, or sound recordings without editorial or artistic participation therein, without a direct interest in the commercial success of material so produced, and without common ownership between the concern providing such services and the concern’s interest in such success; (E) Broadcasting and cable TV: operators of commercial broadcasting (radio and television) stations and cable TV systems under the regulatory jurisdiction of the Federal Communications Commission (FCC) or a cable TV franchise granted in conformity with FCC standards, are eligible to apply for financial assistance; (F) Education: vocational, technical, and other nonacademic schools which do not also teach academic subjects; and nursery and pregrade schools if they are not primarily engaged in teaching academic subjects; (G) Distributors of books: assistance is not prohibited for general merchandise stores also selling books, newspapers, magazines, records, etc., and general book or music (record) stores; (7) Where any part of the gross income of the applicant (or any of its principal owners) is derived from gambling activities; (8) Where the loan is to provide funds to an applicant, other than a local development company, primarily engaged in the business of lending or investing, the otherwise eligible enterprise becomes ineligible’ where the purpose of assistance is to finance investments that are neither related nor essential to the enterprise; (9) Where the purpose of the loan is to finance the acquisition, construction, improvement, or operation of real property which is, or is to be, held primarily for sale or investment; provided that this prohibition shall not apply to a loan for the remodeling or improvement ( including expansion) of existing commercial or industrial structures held for rental where the applicant is performing substantial maintenance and operational services in connection with such structures; and provided further that no loan shall be made to build or acquire buildings for investment; (10) Where the effect of the granting of the loan will be to encourage monopoly or will be inconsistent with generally accepted practices of the American system of free competitive enterprise. [Eff. JUL 6 1981; am and comp DEC 21 1989] (Auth: HRS §210-4, §210- 5) (Imp: HRS §210-5, §210-6)