4.7.2.5 Cost of Issuance Limit

No more than 2% of the proceeds of any qualified private activity bond issue may be used to finance the costs of issuance associated with the bonds (no more than 3.5% with respect to qualified mortgage bonds or qualified veterans mortgage bonds if the proceeds do not exceed $20 million). Certain costs, such as letter of credit fees or bond insurance premiums, are not treated as costs of issuance for purposes of this limitation. This limitation is particularly important in the case of smaller issues because the actual costs of issuance may often exceed the 2% threshold. In these cases, the issuer or conduit borrower will have to pay the excess amount out of cash or a separate taxable borrowing.