Derek Scott, the 47-year-old owner of Loco Trendz, pushes his Hawaiian giftware business in Waikiki where he used to sell drugs.

"I still sell bags but everything is legal now," said Scott, who became sober in his late 20s, started his now-thriving business about 10 years ago and became this quarter the only Native Hawaiian business owner in Waikiki to be approved for a low-interest-rate Malama Loan through the Office of Hawaiian Affairs.

He points to a simple plastic-wrapped bamboo rice paddle hanging on a rack at the ABC Store at the Royal Hawaiian Center as an example of how far he has come and where he is going. The paddle, which Scott designed and has mass-produced in Asia, retails for $3.99 or two for $7 at ABC Store No. 31.

"I’m excited about where I’m at, and I hope that I can be an inspiration for others," Scott said.

Landing a coveted business deal with ABC Stores and getting a seven-year business expansion loan at a 4 percent fixed interest rate represent the chance of a lifetime, Scott said. "I had ideas from the time I was at Kalani (High School), but the drug scene diverted me," he said. "It’s by God’s grace that I’m where I am today."

Meeting H. Murray Hohns, a successful businessman-turned-staff pastor at New Hope Christian Fellow­ship, was a turning point. "He believed in me and invested money in my business," Scott said.

Before becoming a pastor, Hohns was president and founder of Wagner-Hohns Inglis Inc., which McGraw-Hill rated as one of the top 250 engineering firms.

Hohns said he agreed to help Scott because "he was ambitious, he was godly and he asked me."

With financial banking from Hohns, Scott pursued and landed an account with Duty Free Shopping.

"He sold about $1 million worth of materials to them between 2003 and 2005," Hohns said. "He’s a born peddler and he’s fearless. If I told him to call the president of the U.S., he’d be on the phone before I got the words out."

Scott became sole owner of Loco Trendz at the end of 2010, but Hohns said that he still comes in once or twice a week to mentor Scott and to make sure the books are on track.

The OHA loan will help Scott realize his full potential, Hohns said.

"Hawaii isn’t a friendly environment for small businesses," he said. "This will give him the working capital that he needs with a modest repayment schedule."

Native Hawaiian consumers like Scott can use Malama Loans for home improvement and education and to grow their businesses, said Robert Crowell, technical assistance specialist for OHA’s Native Hawaiian Revolving Loan Fund. "The idea behind the Malama Loan is to help provide economic self-sufficiency to Native Hawaiians," Crowell said.

While Crowell does not know why more Native Hawaiian-owned businesses in Waikiki do not participate in the program, he said that since its November 2007 start, the program has supplied nearly $6.4 million to 277 businesses statewide. Scott was one of 15 businesses awarded a combined $475,000 in Malama Loans in the first quarter of this year, he said.

"The approval rate is about 46 percent," Crowell said, adding that OHA works with applicants like Scott to help them get funded. The default rate on OHA loans is about 13 percent, Crowell said.

Scott was initially turned down for the Malama Loan, but he said the terms were so attractive that he worked with Crowell and others on OHA’s support team to meet their criteria.

"It will help me pay off the factory (in China) so that I can place another good order," he said. "It’s vital for me to keep my accounts serviced and not run out of products."

Coaching and business loans from OHA have helped other Native Hawaiian business owners like Fitted Hawaii and Makana Esthetics grow.

"It saved our business," said Keola Rapozo, who created Fitted Hawaii, a local hat, clothing and accessory company, in 2005 with ex-pro skater Rene Matthyssen. "We had exhausted our initial budget. The OHA loan bought us time and forced us to figure out a faster way to move the product out the door. It also came with a mentor that I could call and ask for advice."

OHA gave Malia Sanchez, owner of Makana Esthetics Wellness Academy, the courage to pursue her goals.

"A lot of times, I think Native Hawaiians think that they aren’t good enough to be part of that group that becomes business owners," Sanchez said. "OHA helps people be proud of who they are and want to become an example for other people. A big benefit to an OHA loan is that they want you to succeed, because your success is theirs."

With OHA’s infusion, Scott plans to design new products that he will have made in Asia and then sell to businesses across the isles and maybe the mainland, Guam, Saipan, New Zealand and Costa Rica.

"I’m looking for the next paper clip idea," he said. "You know it’s just a 3-inch wire, but look what happens when you bend it. You don’t need a rocket to get an explosion. You just need something that people want to buy."

The business is so competitive that Scott doesn’t want to share his ideas, but he’s hoping that they will sell at the ABC Stores like his rice paddles.

"There’s a lot of competition to get here," said Ted Saka­moto, manager of ABC Store No. 31 in the Royal Hawaiian Center, which was the top seller in the chain last year.

Partnering with an ABC store can be a life-changing opportunity for most small-business owners, said Waikiki-based retail analyst Stephany Sofos.

"It can open doors to 78 stores in Hawaii, Guam, Saipan and Las Vegas. It’s a big gorilla like Walmart," Sofos said. "Getting in or not getting in makes and breaks small wholesalers. For these guys it’s the difference between creating a job for yourself where you make just enough to get by or establishing a business."

Different vendors supply ABC Stores with everything from snacks to carved photo frames, key chains, bookmarks, hair clips and more, Sakamoto said.

"The person we are dealing with is just as important as the product," he said. "It’s like when you buy life insurance, it’s all about the agent. We can tell who is in it to sell and who will work with us to develop product lines."

When Scott first started Loco Trendz, he sold products for other businesses and earned a commission. Now he develops his own products, working with partners like ABC to come up with items that will sell in volume.

"In this business I make cents and the stores make dollars," he said. "But it’s worth it; when you get volume all those cents add up."

Although Scott buys and resells some locally produced items such as soap, Loco Trendz took off about six years ago when he began sending manufacturing to Taiwan.

"We use different companies to produce different items," he said, adding that most of his goods are now produced in China, where prices are lower.

While the proliferation of Hawaii items made outside of the state has drawn criticism from those who favor authenticity, Scott said manufacturing items in Asia has enabled him and his buyers to get better returns.

"Labor is outrageous here, and I have to compete with all of the immigrant-owned businesses that still have ties to their home countries," he said. "It’s pretty much all made in Asia. If a product is made here, it’s double the cost."

Manufacturing cost and quality are paramount. "There are lots of mimics out there, and they’ll undercut you quick," he said. "I’ve lost accounts over 30 cents."

Scott minimizes risk by staying ahead of consumer demand and offering strong customer service.

"I went from scraping change to over 100 accounts," said Scott, who, in addition to the ABC Stores, now wholesales to retailers like Walmart, the military stores, CVS Pharmacy, Walgreens, Don Quijote and the airport DFS stores. He also offers personalized products to attractions like the Hono­lulu Zoo, Kua­loa Ranch and Matsu­moto’s.

"With the OHA loan my business is on the cutting edge of exploding," he said.