Changes to a low-interest business loan program should make it easier for Native Hawaiian businesses — and possibly individuals seeking assistance for home improvement and educational pursuits — to tap into a $26.8 million fund.

The Office of Hawaiian Affairs last week announced it is restructuring the Native Hawaiian Revolving Loan Fund and will stop accepting applications until new rules are set in place. The program's changes are expected to be finalized early next year.

The revolving loan fund, established in 1989 to provide low-interest loans to Native Hawaiian companies, has won praise for helping hundreds of Hawaiian entrepreneurs gain a foothold in the business world. But in recent years, it has also garnered sharp criticism.

The federal Administration for Native Americans, which has contributed roughly 40 percent of the funds, cut off a $1 million annual allotment in 2002 because of a high default rate. OHA officials also worried for a time that the agency would be forced to return up to $11 million in money that had not been loaned.

To address the problems, OHA has worked with federal officials who urged the group to broaden eligibility requirements and speed up the loan process. OHA plans to hand off administration of the revamped program to a third-party "strategic lending partner," said Mark Glick, OHA's economic development director.

"We've leveraged our reputation and our resources and are about to form a partnership with a major lending institution so that (the program) will be in branch banks throughout the state," said Glick, who declined to disclose the institution's identity pending final approval of the plan.

The proposal has been endorsed in concept by ANA administrator Quanah Stamps.

OHA is also hoping to reduce the average loan processing time from eight months to 30 days, said OHA administrator Clyde Namu'o.

"Under the new process, there will be a distinction between those who have been in business and those who are starting out," Namu'o said, thereby making it easier for established firms to move more quickly on their loans.

Speeding up the timetable is important, he said, because "people in business need the money now. Our goal is to try to lend out as much of the (fund) as we can in the next two years."

In addition, OHA wants to expand eligibility requirements to allow individuals to receive loans.

While details need to be worked out and approved by ANA, Glick said, the revamped program would allow individuals to obtain loans for home improvement and education. "We believe that the statute that established this program extended to Native Hawaiian individuals," Glick said. "Commissioner Stamps is entertaining the notion of extending this to consumers."

OHA trustee Oswald Stender said that during an Aug. 28 meeting with trustees, Stamps appeared to support expanding the program. "She indicated she would let it go," he said.

In 2004, in response to ANA concerns, OHA eliminated a requirement that applicants first be turned down by two lending institutions. "It was a misinterpretation of the statute," Glick said. "It meant people went to the bank hoping to get turned down so they could get a low-interest loan from OHA."

Glick, who joined OHA about a year ago, said the program's 15 percent delinquency rate is considered acceptable for revolving loan funds. "And we'll be doing much better than that under the restructured program just because of the way we're using our credit scoring and debt service-to-income ratio."

A loan from the fund helped Pi'ilani Wright and her two partners at the Moku Ola Hawaiian Healing Center when they decided to make renovations at their lomilomi massage and spa therapy business at Koko Marina Shopping Center in Hawai'i Kai.

Wright said the loan process took about three to four months but understands it could take longer for others who are just starting businesses. She applauded the proposed changes to the program. "Hopefully, they're trying to make it a little bit more attainable for Hawaiians who need it and deserve it," she said. "If they have the money and they can do it, and people can use it, I think it's good."

Robin Danner, chief executive officer for the Council on Native Hawaiian Advancement, which provides technical assistance and training to those seeking ANA grants, said the number of Native Hawaiian small business owners is on the rise. The council estimates the percentage of small businesses owned by Native Hawaiians jumped from 6.5 percent to 8 percent over the past three years, Danner said.

"It's absolutely essential that we grow this sector of our community, and it's just good for the overall Hawai'i economy," she said. "Access to capital is absolutely critical to not only startups but expansion of existing firms."

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com.