Business is beginning to stir at a state agency that provides low-cost financing for manufacturers and other businesses expanding in the state, a hint that Nevada's economy is strengthening further.
The State Office of Business Finance and Planning expects that it will handle five to eight requests for industrial development revenue bonds this year.
That's up sharply from the two bond issues it handled last year.
And in 2002, when manufacturing was at a near standstill, the state agency didn't handle a single deal.
Part of the increase in activity results from efforts to create a stripped-down, low-cost bond program that makes sense for smaller borrowers say, those needing $500,000 to $3 million.
That wasn't an option under the traditional industrial development bond
program operated by the state Those programs allow companies to borrow at tax-exempt rates, a substantial savings compared to the rates they'd pay if the lender were required to pay federal income taxes on the interest.
But in exchange for the break on borrowing costs, companies that use the program are required to use lawyers specializing in bond issues, need to hire a company to sell the bonds, and often need to pay for a letter of credit or some kind of insurance to guarantee repayment.
Once those costs were added up, the program doesn't make sense for small borrowers, says Doug Walther, who oversees the Office of Business Finance and Planning.
"When you pencil it out, it doesn't make sense to issue bonds in amounts of less than $2.5 million or $3 million," Walther said last week.
"The upfront costs eat away at the interest savings."
To get the upfront costs down for smaller borrowers, the state created what it calls a "mini-bond" program.
Among the cost savings:
* The state negotiated a deal with a firm of bond attorneys which prepared standardized documents that don't need to be drafted anew for every bond deal.
* Paperwork has been standardized and reporting requirements have been streamlined.
* Underwriters were cut out of the middle of the deals.
Instead, the state markets the bonds directly to a group of financial institutions Wells Fargo, Bank of America, Key Municipal Financial and GE Capital.
Walther said the state hopes to find more lenders willing to participate in the direct-purchase program.
With those savings, the mini-bonds now make sense for smaller borrowers, Walther said.
The first user of the program was Carson-Tahoe Regional Medical Center, which last fall won approval to sell bonds to pay for medical equipment for the new hospital it's building at the north edge of Carson City.
Although both the traditional industrial development bonds and the new mini-bonds are intended primarily for manufacturers,Walther said they can be used for any project that would qualify for tax-exempt financing health-care facilities, recycling projects, solid-waste disposal, educational facilities or facilities for use by non-profit agencies.
Most applicants for the bond program are referred by an economic development agency such as Northern Nevada Development Authority or the Economic Development Authority of Northern Nevada.
Others,Walther said, find the agency through its web site (www.dbi.state.nv.us/obfp).
Federal law limits size of the bond issues to $10 million.Walther says that keeps most large companies from use of the program.
Start-up companies, meanwhile, usually can't meet the program's requirement for financial history.
