Industrial Development Bond (IDB) Comparative Interest Rate Chart
Since January 2009, IDB weekly variable rates averaged 0.34% and over the last 20 years, have averaged 2.29%.
IDBs issued to purchase land, buildings and new equipment are typically sold as federal and state tax-exempt weekly variable rate bonds. To make the bonds marketable with the lowest possible interest rate, a bank that is rated "A" or better provides a Letter of Credit guarantee to the bond purchasers for an annual fee of about 1.5% of the outstanding principal balance.
Therefore, the current IDB annual percentage rate (APR), is the current weekly interest rate of 0.27%, plus the LOC fee for a total of 1.77%
Using the 20 year historical IDB average of 2.29%, the average APR is 3.79 (click here for a brochure on how IDBs work)
A 12 week moving average line has been included to the tax-exempt trend line in the chart below to smooth out some of the short-term, wider fluctuations of the weekly variable IDB tax-exempt rate.
Also included in the chart is the bank prime rate - the "standard" bank lending rate, but most businesses will be charged at least two percentage points in addition to this amount for commercial building financing, with a maximum 20 year term - IDBs are usually set for 30-35 years.
Taxable bonds can be used in conjunction with IDBs to cover ineligible costs or can be sold by themselves (with a bank Letter of Credit) to finance any business or non-profit capital purchase over $3 million dollars, without State or local government approval.
In the Small Business Administration (SBA) 504 financing structure for the purchase of land and buildings, the 504 rate (40% of the project financing) is combined with a bank loan for 50% of the project costs, which is typically at Prime plus 2 or more additional percentage points. Click here to see the pros and cons of SBA 504 vs. IDB financing.
Using the 20 year average of these rates and real-world comparisons: the IDB average of 2.29% plus the bank LOC fee of 1.5% creates an IDB APR of 3.79%, which is 4.4 points below the prime market rate of 8.19% (6.19% plus 2 points); and 2.4 points below the SBA 504 average of 6.88%. (see the table in the chart below).
Click here to see more detail on the IDB tax-exempt rate trend for the last 4 years.Contact Keith Sutton or Walter Vennemeyer for more IDB information.