Tax-Exempt Financing Back Tax-Exempt Financing is available for businesses, municipalities and nonprofits through the Cumberland County Industrial Development Authority (CCIDA) and administered by the Cumberland Area Economic Development Corporation (CAEDC). ELIGIBLE PROJECTS Real Estate acquisition Construction Renovation or expansion Machinery and equipment acquisition and installation Financing costs Infrastructure improvements Tax-exempt refinancing Transportation improvements Greenways, trails and recreation improvements ELIGIBLE BORROWERS Manufacturing Industrial Non-Profit 501(c)(3) Energy Solid Waste Disposal Wastewater Treatment Transportation Facilities Assisted Living/Housing LOAN LIMITS Variable by project/$400,000 minimum TERMS Since 1990, CCIDA rates have averaged approximately 50% of prime interest rate. Terms are based upon a negotiated letter of credit and can go as far as 30 years. Direct tax-exempt loans are also available, which eliminates the need of obtaining a letter of credit WHAT ARE THE SAVINGS OF A TAX-EXEMPT LOAN Let’s take an example of a borrower receiving financing for a $5,000,000 loan. The borrower approaches its bank and asks the bank to quote the $5,000,000 financing on the basis of both a traditional taxable commercial lending rate, as well as a tax-exempt rate (contingent upon receipt of an appropriate opinion of counsel that the financing qualifies as a tax-exempt financing). The bank quotes a 20-year amortization, with a five-year fixed rate and five-year demand option (bank has right to reset rate or require refinancing in five years). Based upon current market conditions, the strength of the borrower, a mortgage on the property and improvements, and a general security agreement with the borrower, the bank quotes a taxable five-year rate of 5%, and a tax-exempt rate of 3.5% (70% of the taxable rate). Assuming a mortgage style amortization of principal, over the life of the loan, the total debt service savings in the first five years is $356,402 and, assuming interest rates do not change and the loan is not called by the bank, the debt service savings over the life of the loan is close to $1 million ($959,952). Let’s assume the incremental costs associated with doing the transaction on a tax-exempt basis (bond counsel, issuer fee, issuer solicitor’s fee, additional work by borrower’s counsel, etc.) is 2% of the amount of the loan ($100,000), versus doing the loan as a taxable transaction. Given the same assumptions as above, the net savings to the borrower would be $256,402 in the first five years and $859,952 over the life of the loan. If interest rates rise over time, a tax-exempt transaction produces even greater savings relative to a taxable transaction, as the difference between taxable and tax-exempt interest rates is greater as taxable rates rise (tax-exempt rates are generally a fixed percentage of taxable rates). NEXT STEP Contact CAEDC to determine if your business and/or project are eligible for tax-exempt financing.
