Financing

Industrial Revenue Bonds

Industrial revenue bonds (IRBs), commonly known as "Act 9 Bonds" in Arkansas, provide manufacturers with competitive financing.

Under Arkansas Act 9 of 1960, cities and counties are authorized to issue IRBs to benefit private companies. Because Act 9 IRBs do not obligate cities or counties to make payment except from project income, the bonds must be underwritten on the financial strength of the company or guaranteed by the Arkansas Economic Development Commission or the Arkansas Development Finance Authority.

Interest on tax-exempt issues is normally 80% of prime, but this may vary depending on terms of the issue.

The primary goal of this financing is to enable manufacturers to purchase land, buildings, and equipment to expand their operations.

In addition to tax-exempt industrial revenue bonds, taxable industrial revenue bonds may be used for distribution facilities and business headquarters at long-term fixed rates and for manufacturing projects that exceed $10 million in capital costs or do not meet other federal guidelines relative to tax-exempt bond financing. Tourism attractions and facilities may also qualify.

Businesses that use either tax-exempt or taxable industrial revenue bond financing can negotiate with the local community for a payment in lieu of property taxes.

Eligibility Requirements for Tax-Exempt Bonds

Tax-exempt bonds are regulated by the IRS Code and any prospective borrower must meet these basic requirements to use tax-exempt bonds to finance the project.

To qualify for a tax-exempt bond program, a borrower must meet the following eligibility criteria:

  • The firm must be engaged in manufacturing, processing, or other activities directly supporting or related to manufacturing or processing. The project must be for expansion or acquisition of fixed assets that are needed for the manufacturing process
  • The business's total outstanding tax-exempt bond debt nationwide cannot exceed $40 million
  • The total capital cost may not exceed $10 million for a six-year period
  • The capital expansion must create new jobs

Benefits

Tax-exempt industrial revenue bonds provide numerous benefits to qualified manufacturers. The advantages are:

  • Tax-exempt rates - On average, most tax-exempt issues will be 80 percent of the prime interest rate
  • Long terms - Terms are up to 20 years
  • Assumability - The bonds are assumable if the business is sold to a qualified user
  • Comprehensive funding - The funds can be used for construction and financing to purchase land, buildings, and new equipment