North Dakota Direct Financial Incentives 2011
North Dakota's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include industrial development bonds, funding programs, and customized industrial training.
Cities and counties issue tax-exempt industrial development bonds to provide financing for land, buildings, and equipment to businesses. Interest rates are negotiated with the lender. Bond terms are up to 40 years. Bonds issued to build a project are exempt from all state and local taxes with the exception of transfer, estate, and inheritance taxes.
The Bank of North Dakota (BND) provides a Business Development Loan Program that is designed to assist new and existing businesses in obtaining loans that reflect a higher degree of risk than would normally be acceptable to a lending institution. The program requires a minimum of 30 percent participation by the originating financial institution. The maximum BND loan participation is $1 million and BND's interest rate can either be fixed or variable.
BND also participates in the Partner in Assisting Community Expansion (PACE) Loan Program, an interest buy-down program with state, local lender, and community participation. The program is intended to assist North Dakota communities to expand their economic base by providing for new job development. The borrower can be any person or entity whose business is in manufacturing, processing, value-added processing and targeted service industries. Targeted service industries are businesses involved in data processing, telemarketing, telecommunications, major tourist attractions, early childhood facilities (sunsets 07-11-2011), holding companies involved in leasing assets to entities otherwise defined as a PACE qualified business, and all other service companies and wholesalers that generate 75 percent or more of their sales outside of the state of North Dakota. The program uses monies set aside in the PACE fund with local monies to reduce the interest rate on loans by as much as 5 percent below the note rate (floor of 1 percent or 5 percent below WSJ Prime whichever is greater). The borrower must create 1 job for every $100,000 of loan proceeds. There is a cap of PACE funds that a borrower may receive per biennium. Currently the cap of PACE funds is limited to $300,000 under the PACE program.
The PACE program has expanded to include the Flex PACE Program and the Biofuels PACE Program.
The Flex PACE feature of the PACE program provides interest buy down to borrowers that do not fit into the traditional definition of a PACE qualifying business. Under Flex PACE, the community determines eligibility and accountability standards. Flex PACE allows communities the ability to provide assistance to borrowers with a business focus or need outside of the current requirements of PACE, such as jobs retention, technology creation with no new jobs, retail, smaller tourist businesses and essential community services. Job creation is not a requirement of Flex PACE, but jobs will be tracked for informational purposes. Currently the cap of Flex PACE funds is limited to $200,000 per borrower.
The Biofuels PACE program was established to buydown the interest rate on loans to biodiesel and ethanol facilities and livestock operations.
Ethanol Production Criteria: Production facility must be located in North Dakota; facility must produce agriculturally derived denatured ethanol; fuel must be suitable for blending with a petroleum product for use in internal combustion engines; ownership must consist of Ag producers who hold at least 10 percent interest in the facility or residents of North Dakota must own at least 50 percent of the company; project maximum: $500,000 of interest buy down; loan terms: 7 to 12 years; equity: 40-50 percent.
Biodiesel Production Criteria: Production facility must be located in North Dakota; facility must produce biodegradable, combustible liquid fuel derived from vegetable oil or animal fat; fuel must be suitable for blending with diesel fuel for use in internal combustion diesel engines; ownership must consist of Ag producers must hold at least 10 percent interest in facility and residents or North Dakota must own at least 50 percent; project maximum: $500,000 of interest buy down; loan terms: 7 to 12 years; equity: 40 percent to 50 percent.
Livestock Operations Criteria: Livestock operations located in North Dakota that feed, handle, milk, or hold livestock with these operations using as part of its operation a byproduct produced at a biodiesel or an ethanol production facility. Eligible uses are for the purchase or construction of real property, expansion of facilities, and purchase or installation of equipment including a biodigester system; project maximum: $250,000 of interest buy down to any single livestock operation' loan terms: 5-15 years; equity: 40 percent.
Other Biofuels PACE Parameters: Recipients of Biofuels PACE are not eligible for regular PACE funds; interest buy down of 5 percent below the note rate; no community match is required; existing PACE Program parameters (ex.: interest rate buy down maximum, BND's participation amounts, default) will apply to Biofuels PACE; loan funds may not be used to refinance any existing debt or for relocation within the state.
BND also offers The MATCH program. This program is designed to encourage and attract financially strong companies to North Dakota that will provide a major economic benefit to the State. This strength must be evidenced by a long-term credit rating of A or better as determined by a national rating agency. The program is targeted to manufacturing, processing and value-added industries. For the qualifying borrower, BND offers a rate of interest equal to .25-.50 percent over an equivalent term U.S. Treasury Note. The rate can be fixed for as long as five years, or may be reset annually. The interest rate may be adjusted periodically throughout the term of the loan depending upon the conditions of the MATCH funding and the ability of the borrower to maintain its A rating.
Administered by the North Dakota Development Fund, the New Venture Capital Program through the Bank of North Dakota provides funding for early stage companies which can show clear proof of completed product development and market acceptance as evidenced by growing sales. The Bank will invest in a variety of technologies and businesses types, including strategic target industries. BND will also invest in growth and later stage manufacturing, service and businesses with profitable growth potential. The New Venture Capital Program will invest up to $300,000 with appropriate capital structures favoring subordinated debt with warrants to acquire common stock, preferred stock with warrants to acquire common stock and common stock.
The state-sponsored Development Fund provides "gap financing" through loans and equity investments not available from most conventional lenders and is available to any "Primary-Sector" business with the exception of production agriculture. The Development Fund also administers the Regional Rural Revolving Loan Fund, which provides funding for "Primary-Sector" projects located in a community of less than 8,000 in population or located more than five miles outside the city limits. If a business can't handle added debt, the Development Fund can take an equity financing position. The North Dakota Development Fund and the Rural Revolving Loan Fund initial funding amount into "Primary Sector" businesses is up to $300,000.
The Development Fund also administers the Child Care Loan Program to provide financial assistance to North Dakota Child Care Providers. Eligible organizations are licensed profit, non-profit and public child care facilities. Faith-based organizations are eligible, but must follow all appropriate federal guidelines, if receiving federal subsidies. The maximum amount of funding available to Child Care facilities is $100,000 and can be used for acquiring, leasing, or remodeling of real estate facilities, purchasing equipment or working capital.
The North Dakota Development Fund also administers the Entrepreneurial Center Loan Program and the Entrepreneur Loan Program. The Entrepreneurial Center Loan Program provides funding to centers approved by the Department of Commerce of up to $50,000 per year and a maximum of $250,000. The Centers cannot be a state entity or an institution under the control of the state Board of Higher Education. Each $1 dollar accessed under the program must be matched by $1 dollar of private funding. The Entrepreneur Loan Program provides funding to entrepreneurs utilizing the services of an approved Entrepreneurial Center of up to $20,000. Each $4 dollars of funding accessed under the program must be matched by $1 dollar of private funding.
Customized industrial training:
The Specialized Job Training Program custom-trains people for the specific needs of new and expanding industries. The state assists firms in recruiting, screening, and testing potential trainees.
North Dakota offers a New Jobs Training Program for new or expanding businesses. Qualifying businesses can obtain loans that are repaid through state income tax withholding credits. State income tax on wages paid normally goes into the state's general fund. In this instance, the income tax revenue is used to pay off the loan instead. In practice, the training is at no cost to the business, since the revenue comes from individual state income taxes that would have to be paid.
Workforce 20/20 is a state funded program that provides direct grants to employers for training, retraining, and upgrade training. The program is administered through Job Service North Dakota and requires a match from the employer.
North Dakota State Contact:
North Dakota Dept. of Commerce
Division of Economic Development and Finance
P.O. Box 2057
Bismarck, ND 58502-2057
Fax: (701) 328-5320
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.