Business Resources & Incentives > Industrial Development Bond Financing Program

Industrial Development Bond Financing Program

The Industrial Development Bond (IDB) program is a low interest, long-term financing tool for manufacturing businesses for the purchase of land, building and/or new equipment

 

Click here for an IDB Brochure PDF

 

Tax Exempt, Taxable and Prime Interest Rate Comparison and Chart

 

Tax Exempt Interest Rate Information and Chart

 

Interest Rate Comparison PDF Chart (Since 1994)

 

IDB Interest Rate PDF Chart (For the Last Four Years)

 

SBA 504 vs. IDB financing Comparison

 

Alameda County (East Bay EDA staffed) IDB Program Information

 

Industrial Development Bond Program Description

Eligibility

Use of Fund/Projects

Benefits of IDB Program for Borrowers

IDB Process

Requirements

Application Procedures

Development Bond Program

The East Bay Economic Development Alliance (East Bay EDA), on behalf of the County of Alameda, and in cooperation with the cities in the East Bay, is offering tax-exempt Industrial Development Bonds (IDBs) to manufacturing businesses.

The East Bay EDA also puts together IDBs for Contra Costa manufacturers that are issued through the California Enterprise Development Authority (CEDA).

The IDB program targets small and medium sized manufacturing companies that are normally shut out of national credit markets because of their small debt requirement and lack of bond rating and provides a comparable financing alternative.

This program provides low-cost, long-term financing for real estate and equipment projects that retain or create employment in the County.

No public entity assumes any of the risk of the financing. A bank that is rated A or better must guarantee the bond for the investors through a "Letter Of Credit" (LOC) and negotiates a Loan Agreement with the business for collateral, equity and repayment schedule.  This LOC bank therefore makes the credit decisions and establishes the credit requirements (much like it would do for conventional financing).  However, the repayment terms and lower interest rates usually allow the business to qualify for a larger loan. 

The East Bay EDA’s Industrial Development Bond Program is designed to encourage manufacturing businesses to locate or expand in the East Bay.

Additional regulatory, site location, coordination and data assistance is available through the East Bay EDA at (510) 272-3885.

Eligibility

Eligible borrowers and include corporations, partnerships, or sole proprietorships, as long as the user of the property is for manufacturing. The owner of the privately held corporation can also be the borrower and can lease back the facility to the company for tax purposes.

Projects must demonstrate public benefits which include the retention and creation of jobs.

Retail, service firms and other non-manufacturing businesses are not eligible for tax-exempt bonds.

  • The 2009 Federal Stimulus Bill has broadened the use of funds to include:  "the manufacturing of intangible as well as tangible property. This includes, for example, computer software and “intellectual property associated bio-tech and pharmaceuticals.” 

  • Newly qualified “knowledge-based” businesses that are eligible include software developers, the biotech, pharmaceutical and nanotech companies, and the entertainment industry firms.

Use Of Funds/Projects

Bond proceeds may be used for the financing of new capital projects including:

  • Land and building acquisition

  • Construction

  • Renovation

  • New or re-manufactured machinery and equipment.

  • Real Estate speculation, warehouse projects, working capital and refinancing are ineligible uses of IDB tax-exempt bond proceeds.

  • The 2009 Federal Stimulus Bill has also eliminated the limitations On Non-Core/Ancillary Facilities

  • IDB proceeds can now finance any asset that is functionally related and subordinate to a manufacturing, research or production facility that is located on the same site as the core facility.

  • What this means is that all of the land, building, construction\renovation and new equipment elements of an IDB project are now eligible for tax-exempt financing.  Previous restrictions on their use for office, finished goods warehousing and other “non-core” manufacturing uses have been removed.

Benefits of IDB Program for Borrowers

  • Longer repayment period - up to 35 years vs. 20 years or less for SBA/conventional.

  • Lower debt service - variable interest rates averaged less than 2.7% for the last sixteen years. With the Bank LOC annual fee of about 1.5%, the effective interest rate is about 4.2% vs 8.66% for conventional loans (prime plus 2 points).

  • Proceeds can be used for construction financing

  • No prepayment penalties or premium vs. potentially substantial prepayment penalties with the SBA 504 program.

  • Bond funds can include equipment purchases and renovations three - four years, with no interest or principal paid until the funds are drawn down.

  • If the building is sold, the IDB can be assumed by the new purchaser provided the use continues to be manufacturing and the purchaser is able to obtain a replacement LOC.

Terms of Loans

Tax Exempt IDB bonds for land, buildings and new equipment can range from $2 million to $10 million, along with up to an additional $10 million in Taxable bonds, and:

  • Up to 30 year amortization, depending upon the useful life of the assets financed;

    Interest only payments possible for one to two years; Variable weekly interest fixed interest rates are possible and the bond can be converted to variable or fixed during the life of the bond - however, the variable rate has been too low and stable to make that worthwhile; 

    Loan conditions are negotiated with the Letter of Credit bank; 

    Typically they will loan up to 75% of the appraised value of the land and buildings, 90+% on new equipment vs. SBA 504 program will allow up to 90% on land & buildings (click here to see an interest rate comparison).

    The LOC banks typically want to see at least 2 years of profitability and that the payments for the IDB can be covered by existing cast flow.

    Additional closing costs associated with the IDB program will range from 2% to 3.5% (that is why the $2 million minimum), however, interest savings should cover the additional cost within 6 months to a year.  Up to 2% of the IDB proceeds can be used to for closing costs.

    Equipment only projects can be financed with fixed rate, 7-10 year Tax Exempt IDBs, ranging from $2 to $10 million.

IDB Process

  • Discussion of the project over the phone regarding IDB project requirements and project qualification. 

  • A pre-application meeting is held to discuss the project and the IDB program.

  • IDBs are site specific, so there project location has to be determined as well as the business's potential qualification for a rated bank Letter of Credit before an Application is accepted, along with a $1,250.00 application fee.

  • Applications are reviewed by a local Industrial Development Authority (IDA) staff and its bond counsel to ascertain initial eligibility.

  • The IDA reviews the public benefits of the project and adopts an Inducement Resolution that establishes the date from which expenses/purchases can be included in the IDB.

  • The city/county then holds a public hearing and upon favorable conclusion, adopts an Authorizing Resolution in favor of the project.

  • These resolutions and a comprehensive application (prepared by the IDB team with information provided by the borrower) are submitted to the California Industrial Development Financing Advisory Commission, which performs a compliance reviews and approves the issuance of tax-exempt debt by the IDA.

  • The IDA then adopts an Approving Resolution authorizing the issuance of the bonds and execution of documents.

  • The bond issue is then offered to investors by the IDA's underwriters and a trustee bank will hold and invest the bond proceeds and disburse them to the business with the approval of the LOC bank.

  • Normal processing time, from application to funds available, is three to four months.

Requirements

The user must be a manufacturer (or meet the user definitions of the 2009 Federal Stimulus program - see Eligibility and Use of Funds above).

The total capital expenditures of the borrower in the city where the facility is to be located, cannot exceed $20 million in the prior three year and succeeding three year period, including the IDB project costs.

Borrower cannot have more than 40 million of outstanding IDBs in the U.S.

A maximum of 25% of the bond proceeds can be used for Land costs.

If an existing building is purchased, rehabilitation costs equal to 15% of the building's appraised value must be incurred within 3 years.

A maximum of 70% of the bond proceeds must be used to pay for facilities or equipment used in core manufacturing activities. However, the equity contribution of the borrower can be applied to non-core costs, so the effectively the percentage of core manufacturing can be closer to 55%. Core manufacturing use does not include areas like finished goods warehouse space, restrooms, break rooms, docks and office space (design and production supervisor space does qualify).  Taxable bond financing can be used to cover additional non-qualifying costs, including refinancing of mortgages.

Projects must demonstrate public benefits that usually include job creation or retention.

Borrowers must be able to obtain a Letter of Credit (LOC) commitment from a rated bank before the application is submitted to the State, however the LOC commitment process is facilitated by the IDB team.  We do not accept an application until we are relatively confident that a LOC can be obtained.

However, smaller, local, business friendly banks are now eligible to provide the Letter of Credit with “new” Federal Home Loan Bank guarantees!

Application Procedures

Call the East Bay Economic Development Alliance at (510) 272-3885 to discuss your project and IDB program applicability.

If the project meets preliminary IDB screening criteria (manufacturing use of funds, meets LOC bank credit criteria & projects size), an on-site meeting is then scheduled/held to go over the project and IDB program in detail and applicable IDB structure and timing is explained.

Once the IDB team determines that IDB criteria and bank LOC requirements can be met, a fixed price quote (fees payable upon bond closing), project structure and timeline will be provided, and assistance in completing the County application will be provided. A non-refundable fee of $1,250 must accompany the application.  Applications are not provided or accepted until it is determined a project meets all of the IDB criteria.

Then the State application (which also requires a non-refundable fee of $1,250) is prepared by the IDB team  to obtain the tax-exempt bond allocation.  Total application process time takes 6 to 8 weeks.  Total time to funding ranges from 10 to 14 weeks - interim financing can be available in 10 weeks. 

 
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