What is the benefit of tax-exempt financing and who can utilize it?

Simply put, the benefit of tax-exempt financing is a lower interest rate for the borrower. This is because the lender does not have to pay income tax on the interest earned on the loan. Consequently, the lender can receive the same rate of return while charging the borrower a lower rate of interest. Under the Internal Revenue Code, only certain borrowers or projects are eligible for tax-exempt financings. The rules are complex, but generally speaking, governmental bodies, municipal authorities, 501(c)(3) non-profit organizations, certain industrial projects, and certain exempt facilities (including airports, mass transit, and waste disposal facilities) are eligible for tax-exempt financing. There are additional specific types of projects listed in the Internal Revenue Code that qualify for this type of financing.

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