Tax-Exempt Bond Financing

Here is how tax-exempt bond financing works:

Each state has a bond "volume cap," which controls the amount of tax-exempt bonds the state can issue. It allocates a portion of that amount to various issuers throughout the state.

This kind of business financing is actually not new, but only few know that this is existing. The best way to deal with tax-exempt bond is to consult your local economic development authority.

The tax-exempt-bonds are sold in the open market or purchased directly by a bank or other financial institution on behalf of the borrower. The interest income earned by purchasers of tax-exempt bonds is exempt from federal and state income taxes, so the savings can be passed on to the borrower in the form of a lower interest rate.

However, the disadvantage of the short term costs of tax-exempt bond financing are much higher than those of a conventional loan because the manufacturer has to pay for its own bond counsel and the bank's attorneys fees.

The main purpose of the tax-exempt bond issuers is to generate jobs.

"As part of the hearing process, the manufacturer generally must describe what jobs will be created," says Rosholt, noting that some states don't have minimum requirements. "[Some states] are just happy with the tax base and whatever jobs are created."

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