Financing Your Business
Industrial Development Bonds
Small-issue manufacturing Industrial Development Bonds help promote job creation in the manufacturing sector. Since Industrial Development Bonds are tax-exempt private activity bonds, interest rates are substantially lower than commercial financing rates. The bonds also allow long-term amortization periods up to 30 years (depending on the useful life of the assets financed), so a growing company will also devote less cash-flow to service loan principal repayment. Up to two percent of up-front transaction costs can be financed and amortized over the bond term.
Certain public benefits must result from tax-exempt Industrial Development Bond issues and certain limitations are imposed by the state and federal governments:
- Manufacturing Only – At least 75 percent of the bond proceeds must be used for the acquisition of equipment and/or facilities financed must be directly related to the manufacturing process.
- $20 Million Capital Expenditure Limitation – $20 million is the maximum amount of capital expenditures permitted for a company in the City of issuance for the period beginning three years before inducing the bond issuance and extending three years after the date of bond issuance. The Internal Revenue Code also limits the aggregate amount of a company's tax-exempt debt outstanding at any one time to $40 million.
- The bonds can be used to finance the acquisition of an existing building if at least 15 percent of the proceeds are used to remodel/rehabilitate the building.
- In addition, state approval authorities are especially interested in retention/creation of jobs
Credit enhancement is generally required to market Industrial Development Bonds. It typically takes the form of a letter of credit issued by a commercial bank. Any company which has the credit-worthiness to obtain bank financing can usually get a letter of credit as part of an overall banking relationship. In some instances, a third party guarantee from some other investment grade-rated entity may be substituted for a letter of credit. Also, where bond proceeds will be used solely to finance equipment, a privately-placed, tax-exempt equipment lease may be advanced. The City of San Diego does not provide credit enhancement.
How to Apply
The City's Economic Development Division partners with the California Communities Joint Powers Authority throughout the application process. Please visit the California Communities website or contact James Hamill, Program Manager at (925) 933-9229 x216 or firstname.lastname@example.org for additional information.