WEDFA finances businesses through "non-recourse" loans and bonds. Sometimes these transactions are referred to as "Industrial Revenue Bonds." The basic form of the transaction is:
- WEDFA borrows the money from a bank or bond purchaser.
- WEDFA lends the proceeds to the company in return for the company's agreement to repay WEDFA an amount equal to debt service.
- WEDFA assigns its rights in the loan repayments to the bank/bond purchaser.
The biggest benefit to this type of financing is that the bank or bond purchaser does not have to pay income tax on the interest they earn on the investment. This means they are willing to accept a lower interest rate. WEDFA passes on the lower interest rate to the borrower, reducing the borrowing cost.
There can be more pieces, depending on how the borrower decides to structure the transaction, but the key elements are listed above.
WEDFA can also issue taxable bonds, making it possible to fund multi-purpose facilities in a single package.