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Industrial Development Bonds

Tax Exempt Industrial Development Bonds

The Economic Development Agency (EDA) provides tax-exempt Industrial Development Bond (IDB) financing to manufacturing businesses.  IDBs are tax-exempt securities issued by a government entity that provide money for the acquisition, construction, rehabilitation and equipping of manufacturing and processing facilities for private companies.  IDBs allow private sector companies to borrow at below-market interest rates because the interest on the IDBs is exempt from State and Federal income taxation.  Unlike other government incentive programs, IDBs are relatively simple to apply and qualify for.  The annualized cost for most borrowers is 20% - 30% below conventional financing alternatives.
 
Benefits to Borrowers

  • Low interest rates (historical rates have been approximately 5.25% all-in)
  • Flexibility  -  IDBs can remain in place even if the  borrower changes banks after the  IDB is issued. IDBs can also be assumed by an entity purchasing the property if the use continues to be manufacturing
  • Comprehensive Funding - Bond funds can be used for new construction, renovations or to purchase equipment for up to 3  years
  • Variable Rate IDBs have no prepayment penalties

Terms of Loans

  • IDB bond amounts can range from $1 million to $20 million with:
    • Up to 30-year amortization, depending on the useful life of the assets financed
    • Interest-only payments possible for one to two years
    • Variable and possible fixed-interest rates that can be converted during the life of a bond

Eligibility

  • Industrial development bonds must be used to financial manufacturing or processing facilities and/or equipment
  • Eligible borrowers may include corporations, partnerships, limited liability companies or sole proprietorships, as long as the user of the property is a manufacturer
  • Projects must generally provide some public benefits, including job creation or retention


Use of Funds

  • Bond proceeds may be used for the financing of new capital projects including:
    • Land and building acquisition
    • New building construction
    • Renovations of existing buildings
    • New machinery & equipment  


Requirements

  • Total capital expenditures of the borrower in the city where the facility is located cannot exceed $20 million in the prior and succeeding 3-year periods
  • Land costs (financed by IDB funds) cannot exceed 25% of the bond amount
  • Rehab costs to existing buildings must total at least 15% of the building cost within a 2-year period
  • A maximum of 25% of bond proceeds can be used to pay for facilities not used in core manufacturing activities

For more information contact:
Economic Development Division
951.955.8916

Other Resources:  California Industrial Development Revenue Bond Program

 

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