Objectives and General Information
The purpose of the Pennsylvania Economic Development Financing Authority (PEDFA) is to provide access to cost effective capital for growing Pennsylvania businesses. PEDFA finances business projects by issuing both tax-free and taxable bonds, selling them to investors and lending the proceeds to eligible businesses. PEDFA finances several projects at one time in a composite bond. In this way, the fixed costs of issuing the bonds are spread over more projects.
The application should include a local bank's letter of intent to guarantee the loan. This financial guarantee is used to assure that PEDFA bonds are highly rated, attractive to investors and have the lowest possible interest cost for the borrower.
Tax Exempt Program Guidelines
Eligible projects are manufacturing, exempt facilities and non- profit entities. Allowable costs include land (including acquisition, site preparation, legal and other costs), building (including acquisition, construction, rehabilitation and other related costs), and equipment (including acquisition, delivery and installation).
The minimum loan size for a manufacturing project is $400,000 and the maximum is $10,000,000. Non-profit entities and exempt facilities are not subject to a loan ceiling. Job creation and/or preservation is an essential part of a project. Manufacturing projects are required to increase one job for each $50,000 of loan proceeds. Exempt facilities projects must create at least five new jobs while non-profits must create at least 20 new jobs.
Interest Rate and Term of Loan
Loans can initially carry either a fixed or variable interest rate. In addition, those loans which begin with a variable rate can be converted to a fixed rate at the election of the borrower. The term of the loan is a combination of the financed assets: Real estate, up to 30 years; equipment, up to 120% of its depreciable life.
Related costs include the cost of issuance (approximately 2.5% of the principal amount of the bonds), credit support costs (.5% for the master bank; 1% for the participating bank), and miscellaneous costs (approximately .3%). The fees compute to approximately 75% to 80% of prime for variable bonds and 90% to 95% of prime for fixed rate bonds.IDA charges a non-refundable $2000.00 application fee, and a placement fee equal to .2% of the bond issue amount.
Conventional Bond Program Guidelines
All business projects, other than certain residential units, are eligible for conventional bond financing.
Eligible costs include land (acquisition, site preparation, legal and other costs), building (acquisition, construction, rehabilitation and other related costs), equipment (acquisition, delivery and installation) and working capital (including inventory, supplies, labor and taxes) for up to 15 years. Again, the interest rate may be fixed (varies between 90% and 100% of the prevailing prime rate) or variable (varies between 70% and 80% of the prevailing prime rate). While the loan is in the variable mode, the borrower can prepay principal without penalty; however, a penalty is charged if fixed rate loans are prepaid.
IDA charges a non-refundable $2000.00 application fee, and a placement fee equal to .2% of the bond issue amount. Additionally, the total program cost for a PEDFA bond, including issuance costs, credit support costs and miscellaneous is approximately 90% to 100% of prevailing prime rate for variable bonds and between prime and prime plus 2% for a fixed rate bond.