Nonprofit Bonds
501(c)(3) Nonprofit Bonds help promote job creation and the development of privately-operated, public-benefit facilities. Since these are tax-exempt private activity bonds, rates are substantially lower than conventional financing. The bonds also allow long-term amortization periods up to 30 years (depending on the useful life of the assets financed). Up to two percent of the up-front transaction costs can be financed and amortized over the bond term. The bonds are facilitated under the City's Economic Development Revenue Bond Law.
Legal
Nonprofit organizations seeking to utilize financing must have 501(c)(3) status with the Internal Revenue Service. Such organizations may include research institutions, educational and cultural institutions, and community-based organizations. Sectarian religious institutions are not eligible for financing under this program. There is no borrowing limit or state Private Activity Bond allocation requirement for Nonprofit Bonds. Use of funds can include land acquisition, construction, remodeling and equipment.
Financial
Credit enhancement is generally required to market Nonprofit Bonds. Any organization which has the credit-worthiness to obtain bank financing can usually obtain credit enhancement, which may take the form of a bank standby letter of credit. In some instances, a third-party guarantee from some other investment-grade rated entity may be substituted for a letter of credit, or the bonds may be privately placed with a qualified financial institution. The City of San Diego does not provide credit enhancement.
The City's Business Finance section can provide any interested organization with a quick, no cost determination of eligibility for tax exempt Nonprofit Bond financing. The entire public approval process from pre-application to closing can be completed in as little as 60 days if the applicant's business deal is ready to go. The City will facilitate the governmental approval process concurrently with the credit underwriting/business deal process.
For more detailed information on Nonprofit Bonds, contact the City of San Diego's City Planning & Community Investment
Department at (619) 236-6323 or via e-mail.
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