The Growing Search for Capital
Working as a consultant for new and upcoming businesses, I often hear, almost every day, really, just how annoying it is to deal with commercial banks nowadays. Just the other week I had a meeting with a business owner whose business is commercial lighting, and they’ve been building their business and increasing their companies sales for more than twelve years. His company has experienced excellent growth, has fantastic profit trends, an awesome marketing plan for this year, and has a positive cash flow.
In addition to his financials being in such a good place, his marketing and business plan are very well written and quite polished. Sadly, the most annoying thing for him (and a million other business owners), is that he can’t get his banker to call him back. He chose a banker and turned in a loan package to him, and this banker won’t even give him a simple phone call back. Ever. He is stringing this entrepreneur out and making him ponder whether or not they’ll actually come through for him by giving him the line of credit he’ll need to execute his marketing plan. Read more
Tax Exempt Funding for Your Business?
Ever heard of tax exempt
bonds to fund private, for-profit businesses? Neither have I until this week.
Typically, when I hear about tax exempt bonds, I think municipal bonds issued by a city, school district, or some other government, not-for-profit agency below the state level. These organizations issue these bonds to raise money for certain projects in their area or region. These tax except issues allow these agencies to raise funds at lower interest rates. Their investors receive exceptions from Federal & State taxes. Win – Win for everyone.
So, can these same tax exempt bonds be used to fund, at lower interest rates, for-profit, private businesses? YES.
According to the Council of Development Finance Agencies, these Private Activity Bonds (PABs) are a mandate from the federal government which allows individual states to issue tax exempt bonds for the benefit of private entities within their state. In other words, each state is allowed a certain amount of private bonds it can issue to private companies or individuals under a tax exemption status – allowing these businesses a means to finance certain projects at lower interest rates than traditional financing. The amount of funds each state can raise is set by the federal government (call volume cap) and the “qualified” companies that can receive funds from these exempt bonds are set by Section 141 of the Internal Revenue Code.