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What is an Industrial Revenue Bond (IRB)?
Do I have to operate an industrial facility to use IRB to finance my project?
As a private enterprise, can I finance a project utilizing an IRB?
If I operate a Non-profit (not-for-profit) organization, am I eligible to utilize IRB to finance my project?
I would like to finance a project to construct an administrative building to manage a program aimed at assisting single mothers. Can I use IRB to finance this project?
What is the process to initiate an IRB?
What is the role of Lexington-Fayette Urban County Government?
If I qualify for an Industrial Revenue Bond, who loans me the money?
Should I obtain a lawyer to assist me through this process?
What is the difference between an IRB and a commercial/construction loan?
Q: What is an Industrial Revenue Bond (IRB)?
A:
A tax-exempt Industrial Revenue Bond is simply a method of financing a project using tax exempt (in some cases taxable) bonds which from the borrower’s point of view is simply a loan from a bank or other institution offering an interest rate typically 1% to 3% lower than conventional financing if the project qualifies.
Q: Do I have to operate an industrial facility to use IRB to finance my project?
A:
Generally speaking for private for-profit companies, the projects must be either manufacturing or processing and in some cases solid waste disposal facilities and certain other projects may qualify. Distribution facilities, office buildings, retail, etc. do not qualify. As will be noted below, however, all non-profit 501(c)(3) qualified corporations may qualify for industrial revenue bond financing for any project.
Q: As a private enterprise, can I finance a project utilizing an IRB?
A:
As mentioned in Question 2 under the circumstances presented there, you may finance a project utilizing an IRB.
Q: If I operate a Non-profit (not-for-profit) organization, am I eligible to utilize IRB to finance my project?
A:
As long as the not-for-profit organization has qualified as an Internal Revenue Code Section 501(c)(3) organization (including in some cases religious organizations including churches), all projects qualify and, even for capital projects and in some cases expense items and in rare cases working capital.
Q: I would like to finance a project to construct an administrative building to manage a program aimed at assisting single mothers. Can I use IRB to finance this project?
A:
Yes, but only if the administrative building is owned and used by a qualified I nternal Revenue Code Section 501(c)(3) organization.
Q: What is the process to initiate an IRB?
A:
Typically you would contact this office and we would refer you to an attorney qualified and on the Lexington-Fayette Urban County Government list of bond counsel. Projects for for-profit entities and non-profit entities typically each have its own particular complexities which may or may not permit such a project to qualify. The only way to determine whether a project qualifies is to discuss it with a qualified bond attorney. In most cases, bond attorneys will discuss your project with you to determine if it qualifies at no cost based on the assumption that if in fact it was qualified that they would be engaged to act as your “bond counsel.” A bond counsel is necessary in order to complete an industrial revenue bond.
Q: What is the role of Lexington-Fayette Urban County Government?
A:
Under federal tax law, only “political” subdivisions, meaning in Kentucky, counties, cities and other authorities, may issue tax exempt industrial revenue bonds. The LFUCG is not in any way responsible for the repayment of these bonds and is not liable for them but merely acts as a conduit to permit your project to qualify for industrial revenue bond financing.
Q: If I qualify for an Industrial Revenue Bond, who loans me the money?
A:
A very important fact with respect to Industrial Revenue Bond financing is that no governmental money is typically involved. The Industrial Revenue Bond and the proceeds therefrom will be loaned to you by your bank or in other cases by institutional investors who will purchase the bonds, but usually only if the project is guaranteed by a commercial bank. This is not a government loan program; therefore, the project must be credit worthy enough to obtain the funding typically through conventional financing in order to qualify for Industrial Revenue Bond financing.
Q: Should I obtain a lawyer to assist me through this process?
A:
As noted above, in order to have bonds issued and sold they must be approved by an opinion of a qualified bond counsel.
Q: What is the difference between an IRB and a commercial/construction loan?
A:
Except for certain requirements and qualifications which would need to be discussed with your bond attorney, the most significant difference with the tax exempt financing is the interest rate, again, which can reduce your borrowing cost by any where from 1.5% to 3.0% or more.

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