FINANCING

 Commonwealth of Virginia, Industrial Development Bonds
Proposed
Amount		 Up to $10,000,000
Proposed
Terms		 Negotiable
Description Industrial Development Bonds (IDBs), or private activity bonds, are issued locally in Virginia through Industrial Development Authorities (IDAs). There is no maximum interest rate on bond issues, which are negotiated between the bond purchaser and the company and interest will generally be set at the prevailing rate for similar tax-exempt securities. The term of individual bond issues may not exceed 120% of the average weighted, reasonably expected, economic life of the facilities being financed with the proceeds of the bond. The typical financing arrangement involves a lease agreement between the company and the IDA with an option for the company to renew the lease or purchase at termination. An installment sale arrangement can also be considered.

Qualified small issue bonds may only be used for financing a facility used in the manufacturing or  production of tangible personal property, including processing resulting in a change in condition of the property.

Ninety-five percent of the proceeds of qualified small issue bonds must be used for land or depreciable property. Inventory, accounts receivable, and good will, etc. are excluded. No more than 25% of bond proceeds may be used to acquire land. The Tax Reform Act of 1986 added a prohibition on using more than 2% of bond proceeds on issuance costs; issuance costs in excess of 2% must be financed from equity or other non-bond sources. Bond proceeds may be used to acquire existing buildings and equipment if an amount equal to at least 15% of the cost of the project (in the case of buildings) or 100% of the cost of the project (in the case of equipment) is spent on rehabilitation.
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