Doing Business in Texas: Financing

Picture of Schuyler "Rocky" Reidel

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm.

Doing Business in Texas: Financing

Financing your project in Texas is typically not very different from seeking financing in other states. From tax-exempt financing to commercial banking and other equity financing, Texas laws offer businesses a wide range of options to grow through finance. Exploring your options can help expand and diversify where and how you finance your growth.

Tax Exempt Financing
Tax exempt financing is available in Texas through many governmental and quasi-governmental entities for many manufacturing or other capital investment projects. These projects typically include a heavy infrastructure cost and have a long use expectancy. Some of the more common vehicles for such financing include the issuance of industrial revenue bonds (IRBs), exempt facility bonds (EFBs), and sales tax bonds (STBs) under the Development Corporation Act of 1979. These bonds typically must receive a reservation under the volume cap imposed by federal law.

IRBs are used exclusively to finance land and depreciable property for manufacturing facilities. IRBs are limited to a maximum amount of $10 million in the state and a nationwide limit of $40 million. EFBs can be issued to finance certain types of facilities, these can include: airports, docks, wharf facilities, mass commute facilities, rail facilities, or even hazardous waste facilities. These do not have any limit on the amount issued nor a volume cap reservation, although these facilities must be government owned. These facilities can be leased or managed by contracts to the private sector. EFBs for other projects including water, sewage, or waste facilities, residential rental projects, heating and cooling facilities are subject to a reservation of the volume cap. STBs are only issued by cities that have local sales and use taxes under the Development Corporation Act. These have the most leeway for projects and can encompass commercial, recreational, infrastructure, and other projects within the guidelines of the Act. Although these are subject to sales and use tax availability and voter rejection.

Other Quasi Governmental Financing
Where these financing vehicles have not been enough or for projects outside the scope of the bonds, typically other quasi-governmental entities have stepped in to provide capital financing where the private market has not. An example of this is the Export-Import Bank of the United States. While the Ex-Im Bank’s political survival has been questioned and threatened in the recent years, the capital projects it has borne have lifted American business both at home and abroad. Since 2011, Texas exports financed through the Bank have totaled over $20 billion dollars, supporting over 1000 exporting companies in the state. Over 500 of which are Texas small businesses. The Bank can be a tremendous asset for businesses engaged in the complexities of international trade, helping to insure shipments, guarantee credit, or direct loans.

While the Ex-Im Bank has been threatened recently, Texas has bolstered its own state initiative to provide capital finance to growing Texas businesses. Administered from the Governor’s Economic Development Office, many programs and funds are available to Texas based businesses. These include: The Texas Product Development and Small Business Incubator Fund which aids in the development of new products within the state and offers asset based lending with flexible terms. The Texas Leverage Fund provides financing to communities that have adopted an economic development sales tax. This fund allows the leverage of future sales tax revenues to expand economic development through business expansion, recruitment, and exporting. The State of Texas Industrial Revenue Bond Program provides financing for eligible industrial or manufacturing projects. These are just a few of the many Texas programs that help encourage business growth and location to Texas.

The premier Texas re-location program is the Texas Enterprise Fund, which offers businesses special incentives to choose Texas. The fund is a cash grant used to incentivize projects that would create jobs and investments in Texas where another location is being considered. Since it began in 2004, the fund has awarded over 100 grants totaling more than $500 million across many industries and projects. If you are considering a move of your business or project to Texas, this may help make your decision and even defray any costs involved with that decision.

These are merely an overview of the many governmental and quasi-governmental programs designed to support Texas small businesses. For more information on these programs and learn how you may benefit check out the State’s portal for business at:

Commercial Banking
Texas commercial banks are the last element of financing your business or project. The agency responsible for governing the Texas finance industry is the Finance Commission. This includes state banks, Texas branches of national or foreign banks, trust companies, money service businesses, S & Ls, and consumer lending. While finance is a highly regulated industry, Texas allows banks wide latitude in conducing business. Banks in Texas can extend any number of contractual financing options with many specializing in certain industries, like oil and gas.

Equity Financing in Texas
Texas regulates securities offerings in the state under the Texas Securities Act. It is similar to federal securities laws and protects investors by requiring registration, disclosure, and prohibiting deceptive practices in the sale and offering of securities. The Texas Act governs those securities and offerings that are wholly contained within the state. Those offerings that are both inside and outside of Texas are governed by federal SEC regulations.

Generally, all offerings and sales of securities myst be registered with the Texas State Securities Board. Exemptions do apply to certain circumstances, i.e. federally registered offerings, public utilities, non-profits, securities listed on a stock exchange, commercial paper, and government bonds. Registration must be submitted to the Board and reviewed before approval is given. This process requires careful attention to stay compliant and achieve approval.

Texas is also one of the few states that have created intrastate crowdfunding registrations. During the few years where the SEC had not yet promulgated the federal CF regulation, Texas allowed and regulated intrastate offerings under its own crowdfunding statutes. These rules are similar to the federal rules and require an issuer go through an approved crowdfunding portal.

Texas offers a wide variety of financing options for resident Texas companies and Texas bound businesses around the globe. Compliance with financing laws and strategic planning are imperative for any business seeking financing opportunities. For more information about how to expand your business in Texas with financing, call Reidel Law Firm today at (832)510-3292 or use the contact button below.

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