Industrial Revolution

Let's Be Realistic

While IDB financing can sometimes be accomplished in one hundred days, it can take considerably longer. In Vortech's case, a process that began in early 1997 wasn't completed until September of 1998, when the company was finally funded.

Vortech was actually approved for IDB financing during the latter half of 1997. But as Middlebrook learned, tax exempt financing is a precious thing, and states only have so much funding to allot. By the time Middlebrook was approved, the state's allotment had run out. As a result, he deferred his IDB until the next funding cycle. Meanwhile, problems had begun to surface with the manufacturing site he'd initially selected. Further delays ensued as he looked for, and eventually found, a new site.

But for Middlebrook, it was worth the wait. The interest rate on his $3 million IDB averages 5.25 percent, and he has 25 years to pay it back. If you could get bank financing for 25 years--which you can't--the rate you'd pay would be at least 2 percentage points higher. Bronfman says that, doing an apples-to-apples comparison, $4 million in IDB financing, amortizing over 20 years at 5.25 percent, would cost $26,950 per month. On the other hand, a bank loan amortizing over 20 years at 8 percent would cost $33,450 per month--a huge difference over the life of the loan.

While the first thing everyone will tell you about the IDB process is how tricky it is, get past the pessimism. Middlebrook did. "I wouldn't recommend doing this alone," he says. "But I can tell you this much: It's a lot easier than trying to run a business."

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This article was originally published in the April 1999 print edition of Entrepreneur with the headline: Industrial Revolution.

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