NC Agricultural Finance Authority - Tax-Exempt Agricultural Development Bonds

Agricultural Development Bonds (ADB's) are tax-exempt bonds issued by the North Carolina Agricultural Finance Authority (NCAFA). The NCAFA has the authority under the North Carolina General Statutes (Chapter 122D) to issue bonds for many purposes. ADB's can be used to finance a wide range of agricultural projects that involve "processing" or "manufacturing" of agricultural products as long as these projects qualify for federal tax exemption under the Internal Revenue Code. This results in lower financing costs to the borrower.

Although ADB's can be used for a wide range of development projects, they cannot be used for refinancing. Examples of ADB financings by NCAFA are cotton gins, feed mills, meat processing facilities and agricultural waste to produce green energy.

Firms who wish to consider Agricultural Development Bonds as a method of financing a particular project should contact NCAFA early in the process. NCAFA will advise the firm on how to proceed with a bond issue. Determination of "eligibility" under federal tax code must be done by bond counsel. It should be noted that, although project might qualify as tax exempt, not every project will be acceptable to NCAFA as an "agricultural" purpose.

Certain steps such as the "Inducement" should be done prior to expending money on the project. Expenditures prior to inducement may be subject to exclusion from the bond issue in certain circumstances.

It is highly recommended that the firm have discussions with NCAFA prior to agreeing to a final letter of credit (LOC) to be sure that the requirements of NCAFA for securing the bonds are being adequately met. Failing to do so may results in delays.