Bond financing: The best-kept secret for Central Florida manufacturers

Many privately-owned manufacturers in Central Florida often are faced with the need to get long-term financing for capital projects, including the financing of primary manufacturing facilities, as well as the purchase of equipment. What many of those companies don’t realize is that tax-exempt and taxable bond financing may be an alternative way to finance these projects, saving hundreds of thousands of dollars or more. In most cases, the manufacturers may still maintain relationships with their existing banks and lenders, but if structured in the correct manner, bond financing can be a win-win for both bank and manufacturer.

Industrial development bonds (IDBs) may be used to finance new and expanded manufacturing facilities for manufacturing companies. Some advantages of financing these bonds include lower interest rates, resulting in payments substantially less than similar payments on conventional financing, and, unlike conventional construction loans, they generally do not require subsequent conversion to permanent financing. IDBs may be used to finance the costs of site acquisition, construction, purchase and installation of machinery and equipment, interest during construction and the expenses of bond issuance.

Aside from the great benefit this provides manufacturers in our own backyard, the opportunity also presents itself for companies considering relocating to or establishing themselves in Central Florida. In fact, locally, we have the distinct advantage of having the infrastructure in place to issue and approve these financing mechanisms efficiently. For instance, Enterprise Florida and its affiliate statewide conduit bond issuer, Florida Development Finance Corp., has an office in Orlando. Additionally, the Orlando Economic Development Commission works with the industrial development authorities for both Orange and Seminole counties. There are also a number of local banks engaged in bond financing. I-Con Systems, MBI Inc., Xymogen, Central Florida Box Corp., Florida Food Products Inc. and Earnest Products are all examples of local manufacturing companies that have taken advantage of IDBs.

If the particular transaction does not qualify for tax-exempt IDBs, in many instances taxable IDBs are still beneficial to manufacturing companies. If issued by a governmental issuer, the IDBs and any associated mortgages still may be exempt from certain documentary stamps and intangible taxes.

There are financial and legal considerations related to the use of IDBs, so be sure to check with your accountant and bond counsel, both of whom can help you maximize the effectiveness of these resources.