Many rural developers are finding it difficult to get a deal done that makes financial sense in the current economy. Despite the well-meaning developer, if the numbers don’t project a cash flow, the project will likely be DOA. Historically, traditional financing from a bank along with developer cash was enough to finance a project. However, with increased construction costs and regulatory burdens, these traditional methods are oftentimes not enough to make the deal work. There are, however, several additional financing puzzle pieces a motivated rural developer can secure to move a project forward. Salvaging the project’s cash flow can require utilizing some additional financing tools.

Piecing it Together

Every geographic area has different programs available and regulatory requirements in place. Knowing that, let’s take a look at examples of some additional project funding sources:

Grants

  • Local Municipal Grants – In many instances, the local municipality is just as excited as the developer about the project. The municipality may be willing to offer a limited amount of grant money directly. Forming a professional relationship with the local development staff facilitates understanding the needs and expectations of the community. In doing so, this can strengthen the possibility of securing this funding source. Bring local staff into the conversation early in the development planning. This demonstrates a commitment to the rural community. Additionally, it allows the community to feel a possible sense of ownership/pride in the proposed development.
  • State Grant Programs – Not every state has grant programs, but we love the Iowa Community Catalyst Building Remediation Grant. When applying for grant funds, developers weigh the cost of the time, necessary documentation, and potential rewards. However, the relationship and services that the ED professional can provide during the process can be the competitive advantage some communities provide.
  • Utility Grants – Municipal utilities are often great sources for development incentives on projects important to the community. One creative community is repaying the utility (which made a grant to a developer) through tax increment over time.

Tax Credits and Gap Financing Puzzle Pieces

  • Tax Increment Financing – Every state and municipality uses this tool differently. However, it is a self-funding mechanism, so don’t be afraid to get creative within the boundaries of the local plan. We’ve done some creative work with TIF and find it to be a very useful tool.
  • Tax Credits – While these programs are complex and come with a heavy lift on the administrative side, often the tax credits are sold at a discount to provide an additional source of equity to a project. Check your program carefully before heading down that path. If you need help, Redevelopment Resources would be happy to assist you. Common tax credit programs include but are not limited to:Historic tax credits (from state and federal sources)
  • Affordable housing tax credits
  • Workforce housing tax credits
  • Brownfield/gray field tax credits
  • Gap Financing – Not necessarily a last resort, gap financing via a local revolving loan fund is often the last piece of a project’s puzzle. Generally, a revolving loan fund will offer financing in a subordinated collateral position at developer-friendly terms. This is to incentivize local development when a project simply needs that last little morsel to seal the deal. Local economic development professionals should be able to assist developers in identifying revolving loan funds in the geographic region of the proposed development.
  • Property and Sales Tax abatement – While not an option in Wisconsin, many states offer sales tax abatement. This is typically through the construction period. Property tax abatement is typically for a period of years at the beginning of the project’s life.

Financing Puzzle Support Team

Our team has helped developers complete their capital stack by using any and all of the resources outlined above. The work can be time-consuming and challenging to tackle. The benefit, however, is to provide life for a difficult project and is well worth the time and effort. Applying for these funding sources is a team effort. Utilizing the expertise of our team members can lighten the load. If you have a project which needs a boost to make it across the finish line, Redevelopment Resources can help you complete the financing puzzle. Click on this link to see previous projects we’ve been able to help developers put together.