The Tax-Exempt Bonds

If you are managing a small business and planning to expand your operation as well as upgrade your facilities, then tax-exempt bond is the financing solution that you are looking for. The tax exempt bonds are actually a debt securities that has been issued by the local government in behalf of private businesses. The tax bond will be sold in the market and the interest income earned by the one who purchase the bond is exempted from taxes. This will allow lenders to pass the savings to the borrower with lower interest rate.

This is a clear and concise definition of tax-exempt bond from Wikipedia:

A tax-exempt bond or municipal bond is a bond issued by a city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, redevelopment agencies, special-purpose districts, school districts, publicly owned airports and seaports, and any other governmental entity (or group of governments) below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt.

In essence, the tax exempt bonds are similar to conventional loans. The borrower has to pay the principal amount plus the interest. To get the tax-exempt bond, you must show your worth by demonstrating a good business plan and project proposal.