Mastering the New Market Tax Credits application steps transforms a complex financing process into a systematic journey toward securing transformative capital. The New Markets Tax Credit (NMTC) program offers substantial benefits—39 percent tax credits to investors and below-market financing for businesses—but success requires understanding each application step and executing them with precision. This guide breaks down the application steps from initial preparation through successful closing across the United States.
Step One: Conduct a Comprehensive Self-Assessment
The first critical step involves thorough self-assessment before approaching any Community Development Entity (CDE). Begin by verifying location eligibility using the CDFI Fund’s official NMTC Mapping Tool. Census tracts qualify if they have a poverty rate of at least 20 percent or a median family income not exceeding 80 percent of the applicable area median income.
Evaluate your business type against prohibited activities (golf courses, country clubs, massage parlors, gambling facilities, and stores principally selling alcohol). Assess financial readiness by reviewing three years of financial statements. Most transactions involve allocations of $2 million to $5 million or more due to transaction complexity.
Step Two: Research and Identify Target CDEs
Strategic CDE selection significantly influences success. Focus on geographic alignment—many CDEs concentrate investments in specific states or regions. Identify CDEs that actively invest in your project location by reviewing the New Markets Tax Credit Coalition directory and consulting state economic development agencies. Businesses that have received New Markets Tax Credit financing can provide valuable insights.
Evaluate sector specialization. Match your project type with CDEs that have relevant expertise. Assess allocation availability—CDEs must have undeployed allocation authority to make new investments. Create a target list of five to ten CDEs that appear well-matched to your project characteristics.
Step Three: Prepare Executive Summary and Submit Initial Contact
The executive summary represents your first opportunity to capture CDE’s attention. This two to four-page document should present your project’s most compelling elements concisely. Open with a clear project description, including what your business does, where it operates, and why NMTC financing is sought. Emphasize location in qualifying census tracts, stating the census tract number and qualification criteria met.
Quantify the job-creation potential clearly—specify the full-time equivalent jobs created, wage levels, and commitments to hire from low-income communities. Describe community impact beyond job creation and present financial highlights, including total project costs and requested NMTC allocation amount.
Submit executive summaries through channels specified by CDEs. Include a professional cover letter explaining why you selected this particular CDE. CDEs typically respond within two to four weeks. Working with experienced NMTC consultants can help navigate the communication process effectively.
Step Four: Respond Promptly and Navigate Due Diligence
Once CDEs express interest, responsiveness becomes critical. Organize documentation systematically before applications begin. Create digital folders containing financial statements, tax returns, business plans, and organizational documents. Assign a dedicated point person for managing the application process. Provide complete responses to requests rather than partial information.
The due diligence phase typically takes 3 to 6 months. Anticipate questions about your business model, market opportunity, competitive positioning, and financial projections. Prepare clear answers supported by data. Identify and address potential red flags proactively, building trust through transparency.
Step Five: Develop Strong Financial Projections
Financial projections must demonstrate that businesses can service NMTC financing throughout the seven-year compliance period—base projections on realistic assumptions supported by historical performance and industry benchmarks. Detail assumptions underlying all projections—explain business drivers, market conditions, and operational plans. Conduct a sensitivity analysis showing how different scenarios affect financial performance. Review successful NMTC projects to understand financial projection standards that resonate with CDEs.
Step Six: Negotiate Term Sheets and Close Transactions
Successful due diligence leads to term sheet negotiation, during which parties define the transaction structure, NMTC loan amounts, interest rates, collateral provisions, and compliance requirements. Review term sheets carefully with experienced advisors to understand all provisions. The final closing phase involves preparing comprehensive legal documentation, typically requiring two to four months.
Best Practices for Application Success
Start early—the complete NMTC application process typically spans six to twelve months or longer. Maintain organized documentation and respond promptly to CDE requests. Engage experienced advisors who understand the complexities of NMTC. Understanding how CDFI certification and allocation processes work helps position projects strategically.
Moving Forward with Your NMTC Application
Mastering the New Market Tax Credits application steps requires systematic preparation, strategic CDE selection, and persistent execution. By following these steps, businesses position themselves to access transformative financing that makes projects feasible while revitalizing underserved communities.
Ready to begin your NMTC application journey? Contact CBO Financial for a comprehensive new market tax credit evaluation to assess your eligibility, identify target CDEs, and develop a strategic application approach. Our team helps businesses and developers across the United States master the NMTC application steps.