TIF Financing Options: The Pros and Cons for Tennessee Developers

When a commercial real estate developer secures a TIF Bond in Tennessee, they have options for what to do with it. Each option carries different financial implications for the developer — and understanding these options helps municipal leaders have more informed conversations with the developers proposing projects in their communities. Here is a breakdown of the three primary paths a developer can take with a TIF Bond, and why selling the bond to a capital provider like Hageman Capital typically delivers the most favorable outcome for everyone involved.

Option 1: Hold the Bond and Collect Increment Over Time

A developer can hold the TIF Bond and receive regular payments from the tax increment revenue as it is collected by the municipality each year. This is the simplest approach — the developer waits for the project to generate assessed value, the increment flows into the TIF fund, and the municipality passes through payments on the bond according to the amortization schedule.

The advantage of this approach is that the developer captures the full face value of the bond over time. The drawback is significant: the developer does not receive capital when they need it most — during construction. Development costs are front-loaded, and waiting years for increment to accumulate creates a cash flow gap that must be filled by other sources. For most developers, tying up capital in a long-duration receivable is not financially efficient, especially when construction lenders expect equity contributions at closing.

Option 2: Borrow Against the Bond

A developer can use the TIF Bond as collateral to secure a loan from a bank or other lender. This provides some upfront liquidity, but typically at a discount — lenders will not advance 100% of the bond’s value, and the interest rate on the loan adds cost to the transaction. The developer also retains the ongoing obligation to manage the loan relationship, and the bond’s value is subject to the lender’s assessment of risk, which may not fully account for the taxpayer agreement guarantees now available under Tennessee’s SB 1760.

Borrowing against a TIF Bond can work for certain situations, but it introduces complexity and cost that many developers prefer to avoid — especially when a cleaner alternative exists.

Option 3: Sell the Bond to Hageman Capital

The third option — and the one that Hageman Capital specializes in — is for the developer to sell the TIF Bond outright to a capital provider. Hageman Capital purchases developer-backed TIF Bonds, providing the developer with upfront cash at loan closing. This is the approach that delivers the greatest financial efficiency for the developer and the most certainty for the project.

When a developer sells their TIF Bond to Hageman Capital, they receive immediate capital that can be applied to the construction budget, reducing the equity gap and improving the project’s overall returns. There is no ongoing loan to manage, no interest accruing on borrowed funds, and no uncertainty about future collections. The developer trades a long-duration receivable for day-one cash — and the municipality benefits because the project moves forward faster and with greater financial certainty.

Why This Matters for Municipal Leaders

Understanding a developer’s financing options helps you evaluate TIF proposals more effectively. When a developer tells you they plan to sell their TIF Bond to Hageman Capital, it signals several positive things about the transaction: the developer has a clear capital strategy, the project’s financial structure is sound enough to attract a third-party purchaser, and the TIF Bond will be underwritten by professionals who evaluate these instruments for a living.

It also means the developer will have capital certainty at closing — which reduces the risk that the project stalls during construction. For municipalities, a completed project that generates assessed value and tax increment on schedule is the best possible outcome. The financing path that maximizes the likelihood of that outcome is the one where the developer has upfront capital and the municipality has zero credit exposure.

Tennessee’s Taxpayer Agreements Strengthen Every Option

Under SB 1760, the taxpayer agreement creates a binding developer guarantee with a lien that carries property tax priority. This strengthens the TIF Bond regardless of which financing path the developer chooses — but it is especially valuable when the developer sells the bond to a capital provider, because the taxpayer agreement provides enforceable security that supports the purchase price. The stronger the legal framework, the more capital the developer can unlock and the more confident the municipality can be in the transaction.

Hageman Capital works with both municipalities and developers to structure TIF Bonds that maximize value for all parties. Our team is available as a free resource to Tennessee municipal leaders who want to understand how these financing options work and how to evaluate the proposals developers bring to the table. Connect with our team to start the conversation.