People often think of tax-exempt bonds as something used only by state or municipal governments or not-for-profits. However, due to legislation designed to help Iowa (and other affected states such as portions of Wisconsin and Illinois) to recover from the 2008 floods, for-profit businesses can take advantage of a tax-exempt bond program that can result in lower interest rates than traditional bank financing.
Issued by the Iowa Finance Authority (or other governmental entities), these Midwest Disaster Area Bonds are similar to a traditional bank loan, but with special activity taking place on the back end of the transaction. Instead of lending money directly to the borrower, bonds are issued by the Iowa Finance Authority (or other governmental entity), the bonds are typically purchased by a bank, and the proceeds of the sale of the bonds is then lent to the borrower. Since the bank is earning tax-exempt interest, the borrower receives a lower interest rate. It may sound complicated, but the extra paperwork is only marginally more complex than many typical loan deals.
For Iowa businesses looking to expand or businesses interested in relocating to Iowa’s favorable business climate, obtaining tax-exempt bond financing might be an option that would result in lower interest rates. This story in the Cedar Rapids Gazette highlights the program. Thompson & Thompson LLP’s attorneys have represented borrowers taking advantage of such programs. Contact us if you are interested in learning more about this attractive financing option for your business.