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    2 Replies Latest reply on Nov 6, 2011 8:20 PM by Muledeer

    Anyone experienced with industrial development revenue bond financing?

    gerontologyadv2 Adventurer

      One funding source we are considering using for financing is a industrial development revenue bond. You can fund up to 5 million with a revenue bond and there are several municipalities that are willing to issue the bond. We will be funding a startup pharmacy that will provide services nationally and funding needed is 6 million. It does cost 20 thousand to have the bond issued.  Does anyone have experience with using this as a funding source and if so what were the pitfalls and advantages that you found with this type of funding?  Thanks for the help.

        • Re: Anyone experienced with industrial development revenue bond financing?
          phanio Pioneer

          Just thought of something else.  Have your looked at or talked with your local Community Development Corporation (CDC)?  Ask your chamber how to get in touch with them - they might be able to help you secure funding.

          • Re: Anyone experienced with industrial development revenue bond financing?
            Muledeer Newbie

            Industrial Development Revenue bonds are typically tax-free bonds (sometimes taxable) issued under the authority of a municipal entity and are underwritten and sold by investment banks/advisors.  The problem with IDR's for start-ups is that you need credit enhancement.  The current market for IDR's for speculative ventures without credit enhancement is pretty much non-existent.   You either have to have the financial wherewithal to get a bank willing to issue you a $5M plus interest reserve letter of credit or have the muncipality provide some sort of guarantee, either from taxes they receive from the venture or some other source.  In any event, given the health of most muncipalities these days this has a very low probability of occuring.  Additionally, your estimate of costs of the bond issue is very low, expect more in the nature of 3-5% of the bond funds.  The legal fees are the killer, everyone has a very expensive attorney, the developmment authority, the ibank, the trustee, your attorney, the rating agency and if there is a letter of credit provider, the bank.

             

            The last bond deal I did we had over $750k in legal fees.  The fee to the development authority was just the beginning of costs.  The bond issue was backed up with a Aa2 rated letter of credit and the current cost of financing is 0.24% per year plus a letter of credit fee of 2.45%.    Very low cost financing-- however, the borrower had net worth of 5X the financing amount and liquidity equal to the letter of credit amount even then there were only 2 banks who did letter of credits in our market.

             

            The easier route to go is SBA financing or if you are in a rural area USDA B&I loans.  You will need to have equity of 10-20%, experience in the business and a very solid business plan. 

             

            Please feel free to ask me any other financing questions.

             

            Best wishes,

             

            Gary