Rhode Island Direct Financial Incentives 2011
Rhode Island's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include Industrial Revenue Bonds, small issue bonds, and the Small Business Loan Fund.
Area Development Research Desk (March 2011)
Industrial Revenue Bonds:
The Rhode Island Industrial Facilities Corporation and the Rhode Island Economic Development Corporation are empowered to issue industrial revenue bonds. Industrial revenue bonds may be used to finance qualified commercial and industrial projects. The bonds offer a competitive interest rate and state sales tax exemption on building materials, which may be significant for projects involving new construction. Financing is available through the Rhode Island Industrial Facilities Corporation and covers the entire project cost. The project and the credit of the user provide the security for the bonds, which may be issued on the financial strength of the user when the user is appropriately rated. The bonds may also be issued with an enhancement letter of credit from a financial institution.
Tax-exempt "small issue bonds":
Under the small issue bond provisions of the Omnibus Budget Reconciliation Act of 1993, interest on certain bonds with face amounts of less than $10 million is excluded from income if at least 95 percent of the bonds proceeds is used to finance manufacturing facilities. Industrial revenue bonds are tax-exempt obligations of the issuer, the interest on which is exempt from federal and state income tax. The interest rate on such obligations is normally below that available for conventional mortgages.
The corporation's staff will analyze the needs of the applicant enterprise and advise the applicant whether its particular project qualifies for this financing. Typically, the borrower arranges terms and conditions with a bank for a letter of credit to support tax exempt loans, making it possible to sell revenue bonds in the public market. Applicants with an investment grade credit rating do not require letters of credit for marketing the bonds. The corporation, through its investment advisors and legal counsel, structures public issues of tax-exempt industrial revenue bonds, which considerably reduces the overall borrowing cost of the applicant enterprise.
The Rhode Island Industrial-Recreational Building Authority, bond/mortgage insurance:
The Rhode Island Industrial-Recreational Building Authority (IRBA) may insure industrial revenue bonds and mortgages secured by manufacturing, processing, office, wholesale, retail, and tourist-travel facilities, and by machinery and equipment associated with these types of entities. Under present law, the IRBA is authorized to insure up to $5 million for any one project.
The IRBA will insure the bonds or the mortgage once the project is completed. The applicant must provide its own interim financing. At the completion of the project, the authority will guarantee the permanent mortgage or bonds.
The Small Business Loan Fund:
The Small Business Loan Fund (SBLF) provides partial funding for expansion projects that will benefit Rhode Island's economy by encouraging business development. The program makes loans available with attractive terms for non-speculative ventures involving the following types of capital investment: acquiring land; purchasing machinery or equipment; constructing new buildings and facilities; providing working capital.
The SBLF program is designed to foster the growth of businesses with limited access to private financial sources. It is restricted to small, independently-owned companies involved in the following activities: manufacturing, processing, marine resources, selected services. Specific proposals are evaluated on their potential to help stimulate the state's economy by producing jobs and providing above average wages.
Qualified businesses that can finance a set portion of a project's cost through private sources may apply for supplemental SBLF support. Depending on the scope of the project, a business may borrow $25,000 to $250,000 for hard assets or working capital.
A business must be in a sound financial position and may be a combination of bank funding in conjunction with SBLF, or SBLF can finance the project if a bank refusal letter is attached to the application. It must also demonstrate the ability to repay the loan and have adequate collateral to secure its lending agreement with the SBLF. While a SBLF lending agreement is in effect, a business is required to submit financial reports quarterly, a validated financial statement for each fiscal year, and annual employment information to the program.
The interest rate on lending agreements made through the Small Business Loan Fund is set at the time of commitment. This rate remains fixed throughout the term of the loan. Applications for the program must be accompanied by a nonrefundable fee of $250 that is credited to closing costs upon approval. Qualified businesses also incur a charge of approximately 1.5 percent of the loan amount to cover legal costs at the time of closing. This figure may be higher due to the complexity of the documentation.
Special Loan Programs within the Small Business Loan Fund include the Smart Building Initiative, Micro-Business Emerging Growth Fund, the Rhode Island Urban Enterprise Equity Fund, and the Brownfields Cleanup Revolving Loan Fund.
Rhode Island State Contact:
Rhode Island Economic Development Corporation
315 Iron Horse Way, Ste. 101
Providence, RI 02908
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.