Federal law defines eligible projects. IRBs are a means of financing the construction, expansion and/or equipping of, primarily, manufacturing facilities. Manufacturing generally includes nearly every type of processing that results in a change in the condition of tangible property. The proceeds of the bond issue may be used to finance the cost of land, construction of new or expanded facilities, purchase of equipment, and the payment of certain costs incurred in the issuance of the bonds. Prospective IRB users should consult with bond counsel on project eligibility and the use of bond proceeds.

Unlike most conventional loans, IRBs can offer businesses a convenient, long-term, and often a fixed-rate financing package. Similar to other municipal bonds, the interest earned on IRBs is exempt from federal income taxes. As a result, the bond buyer is willing to accept a lower rate of interest in exchange for tax-free income. Typically, interest rates on IRBs may be from 1.5 to 2.5 percentage points below corporate bonds. The terms of the bond issue are negotiable and can be structured to meet the needs of the borrower. The costs of issuing the bonds, which can be sizeable, can be spread out over the term of the bond issue.

The business must secure the buyer or the underwriter of the bond issue. The bonds are sold by the municipality, which in turn, lends the proceeds of the sale to the business. The funds come from private lenders or from public markets. Tight credit standards apply. The facilities and equipment are pledged as collateral for the loan. A letter of credit or bond insurance is often required.

Federal tax law imposes some limitations on IRBs. The maximum size of a bond issue is $10 million, subject to certain conditions. For bond issues exceeding $1 million, capital expenditures at the business's location(s) in the municipality during the three years before and the three years after the date the bonds are issued cannot exceed $20 million. Also, the total amount of IRBs outstanding at all related operations of the business, in all states, may not exceed $40 million. "Exempt" projects, such as water, sewage and solid waste disposal facilities, do not have to comply with the $20 million limit. Businesses should consult with bond counsel on whether any of these limitations apply.