By Annalisa Burgos

HONOLULU (HawaiiNewsNow) – In this episode of “Covering the Cost” on May 20 at 12:30 p.m., Annalisa Burgos sits down with Hawaii Chamber of Commerce President/CEO Sherry Menor and Hawaii Business Magazine editor-in-chief Jennifer Ablan to talk about the cost of doing business in Hawaii.

Small businesses make up more than 99% of all businesses in the state, employing nearly half the private workforce. But the state also has one of the highest first-year business failure rates in the nation, with 25.4% of new businesses closing within their first year, compared to the national average of 21.5%.

Those that do survive struggle with high operational costs, workforce shortages, limited market size and little access to capital, making it hard to sustain growth and remain resilient amid broader economic challenges, like the war in Iran, tariffs and federal spending cuts. Experts say high costs of labor, rent, utilities, taxes and shipping, along with strict regulations, hamper business growth, making Hawaii among the worst states to do business, according to national surveys and rankings.

The Chamber of Commerce of Hawaii’s 2030 Blueprint aims to address these long-standing issues through policy changes.

“Tariffs, electricity, and it just compounds minimum wage increase, and Hawaii is the only state in the nation that has prepaid healthcare, so that adds to the cost and anytime the wages go up, it’s tied to the fringe benefits too,” Menor said.

A bill passed by state lawmakers this session would establish a Micro-Lending Program where the state can absorb some of a lender’s losses. Expansion of the state’s enterprise zone program will also help.

According to UHERO, more than 38% of Hawaii small businesses report difficulty hiring, with 62% citing a lack of qualified candidates and 39% citing budget constraints.

Economists also cite slow wage growth as a major challenge in keeping workers in Hawaii, coupled with the high cost of living. A 2025 Holomua Collective survey found 75% of middle-income workers in Hawaii have considered leaving the state due to housing costs.

“If we don’t give them the resources, including housing or AI to help their business run more efficiently, they’re gonna leave,” Ablan said.

Nearly 30% of Hawaii small businesses face barriers to financing, especially to cover marketing, sales support and financial and human resources. Now, artificial intelligence is enabling local businesses to automate certain tasks, saving time and money.

Experts say businesses need more sources of capital and tax breaks.

“Payroll tax credits tied to local hiring, so relief from GET on labor intensive services, subsidies for health care and training costs, incentives for profit sharing, and employee ownership credits for retaining long term Hawaii residents,” Ablan said.

Several federal and state programs are available, including Small Business Administration grants and low-interest loans. But over the past two years, the SBA Hawaii District Office has seen a drop in demand for the flexible loans.

Accelerator programs and venture capital associations like Mana Up, Blue Startups, and PICHTR also provide funding, mentoring and resources for startups looking to scale up.

The Chamber of Commerce of Hawaii’s free Biz Boost Program helps small businesses and nonprofits apply for federal resources, such as accounting and legal advice.