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Overview 

Financing is one of the most critical aspects of industrial relocation and expansion. The Alabama Development Office maintains a staff of trained professional industrial development representatives to advise you on available state, federal and private programs.

We also offer you a one-stop source for financing information and we can assist you in tailoring a program that best fits your company’s needs. Southern Development Council (SDC) is a private, non-profit corporation. SDC provides assistance to businesses locating to or expanding in Alabama by arranging and using a variety of financing programs. Affiliated with the Alabama Department of Economic and Community Affairs and the Alabama Development Office, SDC is a statewide SBA 504 Certified Development Corporation. The organization is staffed with qualified specialists who will find the most economical and efficient method of financing your industrial location or expansion.

We at the Alabama Development Office are making every effort to ensure that we have the financing package tailored for the business we want most: yours. Having the following on hand will help simplify the process as you seek financial assistance:

• A business plan that includes a description of the project and a brief history of your    company, its markets, products and management team.
  

• A list of your company’s goals, an explanation of how you will use the money to achieve those goals, and a plan for repaying the debt.

• 
  Balance sheets and income statements for the last three years and a pro forma projecting balance sheets, income statements and cash flow analysis for the next three years.

• 
  Personal financial statements and resumes of all principals.

 
Revenue Bonds

Industrial revenue bonds (IRBs) are financing instruments issued by designated local industrial development boards (IDBs) or other issuers authorized by state law. Since 1949, IRBs have been a preferred method of financing used by industries locating to and expanding in Alabama. Often, financial institutions and other intermediaries participate by providing letters of credit backing the bonds. Thus, the company seeking the bonds must be considered creditworthy by the financial institution.

IRBs provide financing for land, building and equipment for new and expanding manufacturing plants. Certain expenses such as architectural, engineering, legal and administrative fees associated with the sale of the bonds can be paid from the bond proceeds (subject to the limitations of  Internal Revenue Service regulations).

The political subdivision issuing the IRB retains ownership of the bond-financed facility and leases it back to the company at a rate sufficient to pay the principal and interest on the bonds as they mature. When the user leases the property back, there may be several tax advantages such as exemption from sales tax on construction materials, use tax on the purchase of equipment, as well as mortgage deed tax and ad valorem tax for a term limited to ten years. Local sales and use taxes and all ad valorem taxes which are levied for school purposes are not eligible for exemption.

Taxable IRBs will continue as one of the mainstays of industrial finance because they may be issued with fewer restrictions and in unlimited amounts while the user maintains tax savings. The company may buy its own bonds and still be eligible for significant tax savings. Interest rates are generally higher than on tax-exempt bonds.

Tax-exempt IRBs are issued at rates lower than conventional sources because the interest paid on the bonds is exempt from both federal and state income tax. No more than $10 million in bonds may be issued in a single locality and no company can have more than $40 million outstanding. Companies using an IRB may not invest more than $10 million in one location, regardless of fund sources, for a period of three years prior to the issue and three years after it. Companies may choose to lease all or part of their equipment and therefore eliminate that portion from the $10 million limit. IRBs are not generally cost-effective for amounts under $1 million because of the fees involved in issuing a bond. To be eligible, the company must obtain a letter of inducement from the local industrial development board before any monies are expended on a  project. In the case of tax-exempt IRBs, the Internal Revenue Code requires that land acquisition cost must be less than twenty-five percent (25%) of the total bond issue. If the bond proceeds are used to finance the acquisition of an existing building, at least fifteen percent (15%) of the proceeds must be spent on renovation of the building within two years. Bond proceeds may not be used to purchase used equipment except in limited situations. There are a number of other requirements, including a public hearing and volume cap allocation. With this type of financing, competent legal counsel should be obtained early in the project.

Summary of Revenue Bond Program

             •May be exempt from property, sales and use tax.

            •Long-term financing.

            •May finance 100% of project.

             Interest rate below conventional rates (for tax-exempt bonds).

 Use of funds

            •Land acquisition and building construction.

            •Machinery and equipment.

            •Architectural and engineering fees.

            •Cost of bond issuance.

Source of funds

            •Banks, institutional investors.

Maturity-term

            •Negotiable, depending on project and lender.

Limits

            •Tax-exempt: $10 million.

            •Taxable: no limit.

Eligible business

            •Manufacturing.

 Ineligible uses

            •Refinancing and restructuring existing debt.

            •Venture capital, working capital.

Special conditions

            •Loan conditions may vary depending on lending institution.

Tax Credit

Summary. The program allows qualifying companies to claim tax credit against Alabama income tax liability generated by or arising out of a qualifying Alabama project, not to exceed 5% of initial capital cost annually and also not to exceed twenty years from the date the qualifying project is placed in service.

Key Issues. The program is administered by the Alabama Department of Revenue (ADR).  This agency is in the process of developing rules, regulations, and procedures for the program.  All entities must meet the eligibility criteria before qualifying for the program. There is no carryforward, carryback, or retroactivity of tax credits. Credit automatically ends in nineteen years or when the credit used equals 100% of capital investment. An official Statement of Intent must be filed with ADR by the company/entity/business before the project is placed in service and, subject to further determination by ADR before ADR approval. Additional information, ADR rules, and forms are available upon request.