BILL STORY JR. WAS UNHAPPY when he got orders from a local government agency: Move out to make room for a shopping mall. Story has been shopping around since then for the best deal to finance the construction of his new corporate home.He may have found it in an industrial revenue bond (IRB), a vehicle that could soon become more acsible to small companies.
In an IRB, a local government lends its tax-exempt status to borrowers for projects that meet such public needs as job creation. The bond appeals to investors because it is exempt from federal income tax; companies benefit by a comparatively low interest rate.
Many small companies haven't used IRBs, because of mountainous paperwork and the steep cost -- often 25% of a borrowing. But a new consortium that was put together by Developing Systems Ltd., a finance consulting firm, may change that. "We're trying to make IRBs cheap enough for a small-business man to afford and simple enough so that he doesn't waste time," says chairman Ronald Muller.
By combining many small issuers in one offering, Muller says he can slash costs by as much as 60%. And the consortium's six legal and financial companies will guide each applicant through the red tape. One Los Angeles county is planning to issue the first such bond this month, while other states are eyeing the possibility.
Tax reform may strike first. Recent proposals call for eliminating tax-exempt bonds for private uses. Muller isn't worried. "Treasury," he says, "has been against tax-exempt bonds for about 100 years."