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IDBs utilize federal and state tax-exemptions to allow qualified private companies borrower $2.0 to $7.5 million at below-market interest rates normally reserved only for municipalities. Typically, IDBs reduce financing costs by 20% to 30% when compared to conventional funding alternatives. Financing Structure The Association began offering this program in 1995, following a number of requests for IDB financing from borrowers seeking funding on a more economical basis than through programs offered by other qualified issuers. It was determined that conduit issuance of IDBs through the Association would result in significant cost savings for qualified borrowers. The Association may also offer particularly effective service to borrowers seeking to fund multi-jurisdictional project expenditures. Moreover, certain jurisdictions do not have or wish to develop the internal staff resources and expertise necessary to provide this service to qualifying local small businesses. Although the IDBs need to be issued by the municipal Finance Authority in order to maintain a tax exempt status, repayment is not an obligation of the taxpayers or any local, state or federal government agency. Hence, there is no risk sharing with the Finance Authority. The risk of repayment default is assumed by the holder of the bonds or a bank that issues the letter of credit to guarantee payments of the principal and interest. The risk that the bank or other creditor assumes is ultimately the same as in a conventional financing. |
he Industrial Development Revenue Bond (IDB) financing is a new
program offering economical conduit financing to the manufacturing
industry on behalf of ABAG member jurisdictions. Tax-exempt IDB
financing was created to promote investment in land, buildings
and equipment associated with domestic manufacturing and processing
operations, and consistent with the Association's role in the
promotion of economic development in its membership region, the
Association seeks to fund creditworthy projects in which employment
growth and retention are a priority.