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NON-PROFIT INSTITUTION FINANCING
TAX-EXEMPT LEASE FINANCING FOR
PRIVATE NON-PROFIT (501(c)(3)) ORGANIZATIONS
Private placement tax-exempt lease financing may also be issued for
non-profit 501(c)(3) organizations. In order to access tax-exempt financing, an
authorized governmental entity (e.g. city, county, state authority) must act as the
"conduit issuer", whereby the governmental entity enters into a lease agreement
for the equipment and subleases the equipment to the 501(c)(3) organization. Other
relevant provisions for a 501(c)(3) financing are as follows:
A public hearing and an elected governmental official's approval are
required.
The governmental entity acting as the conduit issuer must be authorized
to enter into the lease and sublease agreements.
The governmental entity's obligations are limited obligations payable
solely from the payments made by the 501(c)(3) organization to the governmental entity.
The governmental entity assigns its rights under the sublease agreement
with the 501(c)(3) organization to the lessor as security for payment of the governmental
entity's obligations.
At least 95% of the property being financed must be (1) used in exempt
activities of a 501(c)(3) organization and (2) not have as a principal user any entity
that is not a 501(c)(3) organization or a governmental entity.
No more than 2% of the proceeds of the financing can be used to pay
costs of issuance.
The lessor retains a security interest in the equipment.
Special covenants will apply based upon the type of 501(c)(3)
organization (e.g. higher education, health care, cultural institution, etc.).
STRUCTURE FOR TAX-EXEMPT LEASING
FOR PRIVATE NON-PROFIT (501)(c)(3)) ORGANIZATIONS
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