MANUFACTURER ALERT: U S Treasury pays 40% of a manufacturer’s interest expense
Seize some of the $90 Billion the U S Treasury sets aside to pay for a manufacturer interest expense to cover expansion projects.
The Treasury pays up to 40% of your interest expense. Want more information? Start by reviewing the videos below.
MEDFAS is a group of Tax-Exempt Financing experts who are focused on educating and assisting companies that are interested in borrowing on a tax-exempt basis to fund expansion projects.
MEDFAS provides a turnkey operation for manufacturers around the United States, who may find the process complicated and time consuming. We facilitate every step needed to obtain this low cost capital, including helping companies understand the Federal, State, and Local requirements involved in the funding process.
MEDFAS knows that every penny saved impacts your bottom line, your community, and the people you employ. We aim to strengthen local communities and promote economic development by making the rising availability of tax-exempt funds more accessible so you can invest the money saved back into your company.
Tax-exempt or tax-advantage financing are terms that describe the same program. Tax-exempt financing, also known as tax-exempt loans, notes, lease purchase contracts, lines of credit, commercial paper and bonds, is a way a manufacturer can obtain funds from a lender to finance a qualifying project and where the lender does not have to pay federal, state or local income tax on the interest that the lender receives.
See IRS Publication 4078
Tax-exempt loans for manufacturers are authorized under Chapter 26 ion 144 of the Internal Revenue Code.
Tax-exempt financing can be used to fund land acquisition, real-estate transactions, construction and rehabilitation of buildings, equipment financing, company acquisitions as well as soft costs (legal, architectural, engineering, surveying, test boring, title insurance, appraisals, and finance costs) associated with the project.
A tax-exempt bank loan is a commercial loan by a lender made to a manufacturer to fund qualified purposes. An Industrial Development Bond or IDB is a bond market transaction. IDBs are typically more complicated and more costly than a tax-exempt bank loan.
For the average person the process is very complicated but for those who do this every day, it is not very complicated. Oftentimes people try and do this on their own. Most who do will eventually reach out to us. For most people the process can be stressful, time-consuming, frustrating and scary especially if you make mistakes that violate the Federal Tax Code. When you engage a knowledgeable person, the time it takes to put together a tax-exempt loan is the same amount of time it takes to put together a conventional bank commercial loan. The two processes run parallel. A tax-exempt transaction requires a legal opinion stating that your project qualifies.
Manufacturers benefit from tax-exempt financing when their lender passes the tax savings on the loan to the borrower. Let’s illustrate this with an example. If a lender is willing to lend money at a 4 percent interest rate, that lender will have to pay 40 cents in income taxes for every dollar the lender receives in interest income from the manufacturer. If the funds are borrowed from a lender by the manufacturer on a tax-exempt basis, the lender does not have to pay 40 cents in income taxes for every dollar the lender receives in interest income. So now the lender can pass the savings on to the manufacturer and reduce the interest rate by up to 40 percent. In this example, the 4 percent interest rate becomes 2.40 percent.
Let’s say you are borrowing $10 million to purchase a new building. Your bank is willing to give you a regular (taxable) commercial loan at 5%. One of our banks will give you the same commercial loan at 5% but it will be on a tax-exempt basis. That means our bank will give you the same loan at 3.25%. The savings over the life of the loan is $2.6 million. That means on a regular commercial loan at your bank you will pay $ million more in interest and at one of our participating banks you will pay $2.6 million less in interest
The US Treasury currently allocates about $40 billion dollars a year divided up between states based on population. In addition, each state has an allocation that is left over from previous years. As of this writing, it is estimated that there is about $90 Billion available in low cost capital.
See a chart of what each state has available.
Obtaining and structuring the transaction can be very complicated for the inexperienced user or banker. MEDFAS offers a turnkey program for both users and bankers. MEDFAS’s Professionals have over 40 years of banking experience and have processed tax-exempt loans for varying manufacturers over the years.
Your cost is a one-time $1800 administration fee along with a performance fee based 10% of the amount that MEDFAS saves your company.
There are many misconceptions about the cost/benefits. Most people who go through the process state they saved lots of money and would do it again. The best way to find out is to let us calculate the savings for you in real time at no charge. Refer to question number 6 and 7.
That is not unusual to hear. The program requirement falls under the US treasury regulations and the Internal Revenue Code. For those who think it is too good to be true you should reach out to companies who have actually used the program and hear for yourself. Email us right now and we will give you references you can contact. Let us share this information with all your trusted advisors to help you save money on your expansion project.
If you are a manufacturer you can borrow up to 10 million in any one incorporated municipality where your project is located. You can borrow up to $40 million in any 4 separate and distinct incorporated municipalities anywhere in the US. If you do any type of recycling, plastics, metals, sand, water or anything that has no value unless it is recycled, then you are not limited to the $10 million or $40 million limitation.
Because there are professional fees involved in this type of low cost capital the minimum benchmark for a real estate transaction is about $750,000 and for equipment the amount is about $1,000,000. That said, we encourage clients to review the project with us and let us calculate the cost and the savings based on any amount.
Bankers are all competing for business with the same pitch. “We approve loans locally, we care about our clients, we offer personalized service and we are available when our customers need us.” Well, that describes almost every bank. Tax-exempt financing can differentiate you from your completion because many bankers don’t take the time to master this program. So that means you don’t have much competition. Best of all, you always make the taxable yield your bank wants to make. Below is an example.
Since most lenders today are in a 35 to 40 percent tax bracket, the lender can reduce the interest rate by 35 to 40 percent and still earn the same market rate that the lender is looking for. Let’s illustrate this with an example. If a lender is willing to lend money at a 4 percent interest rate, that lender will have to pay 40 cents in income taxes for every dollar the lender receives in interest income. If the funds are lent on a tax-exempt basis, the lender does not have to pay 40 cents in income taxes for every dollar the lender receives in interest income. So now the lender can pass the savings on to the manufacturer and reduce the interest rate by up to 40 percent. In this example, the 4 percent interest rate becomes 2.40 percent. That’s your competitive advantage!
See a referral letter from someone who has worked with our team
2. What is the legal authority for tax-exempt financing for manufacturers?
3. What qualifies for a tax-exempt loan?
4. What is the difference between a tax-exempt bank loan and an Industrial Development Bond?
5. What’s involved in applying for a tax-exempt bond?
6. How does a manufacturer benefit from tax-exempt financing?
7. How much can I save on a tax-exempt loan vs a regular commercial loan?
8. Can you make it simple and to the point?
9. How much of this low cost capital is available?
10. Why should I work with MEDFAS?
11. How much does it cost to work with MEDFAS?
12. I heard the costs outweigh the benefits
13. My banker, CPA, Attorney, Trusted Advisor never heard of this program. It sounds too good to be true.
14. What is the maximum amount I can borrow under Section 144 of the IRS tax code?
15. What is the minimum amount I can borrow?
16. I am a banker, why should I offer a tax-exempt loan to a manufacturer?
17. What independent websites can I research for information about tax-exempt or tax-advantage financing?
1. Explain the differences between a tax-exempt bond and a tax-exempt loan?
2. How familiar are you and your team with the IRS and Treasury regulations that govern tax-exempt loans for manufacturers?
3. What section of the IRC regulates the process?
4. How many tax-exempt loans to a manufacturer have you done in the last 6 to 10 years?
5. Since these loans are public information, will you give me the names of the companies?
6. How many tax-exempt loans to manufacturers have you done in all of PA, nationally?
7. How much allocation is available in the states you operate in?
8. Can you make it simple and to the point?
9. How much of this low cost capital is available?
10. What portion of the “All-in-Rate” is tax-exempt on a bond and what portion on a tax-exempt loan?
11. You say you did lots of tax-exempt loans, were the loans for hospitals, universities, 501 c (3) or manufacturers?
12. What are the differences in the tax rules for manufacturers?
13. What is a VCAP?
14. What are the top 3 reasons and red flags that will cause the IRS to audit a tax-exempt transaction?
15. What are the penalties if either the bank or the borrower makes a mistake?
16. Who pays the penalty if the bank makes a mistake and an audit discovers it?
17. If the bank makes a mistake and the loan becomes taxable who pays the higher interest rate?
18. If we use a swap, what risk do we take with the IRS?
19. What has to be done with a swap to guard against this risk?
20. What competitive forces are present between a tax-exempt loan at one bank compared to others?
21. Do you know how to detect these competitive forces?