Securing New Market Tax Credit (NMTC) financing can provide transformative capital access for businesses operating in economically distressed communities, enabling growth, expansion, and community impact that conventional funding cannot support. However, navigating the NMTC application process requires understanding the program’s unique structure, preparing comprehensive documentation, identifying appropriate Community Development Entity (CDE) partners, and managing complex timelines. This step-by-step guide provides the roadmap necessary to successfully pursue NMTC capital and maximize the probability of securing this valuable community development financing.
Step One: Verify Your Business and Project Qualify
Before investing time and resources in NMTC applications, businesses must verify that they meet program eligibility requirements. Verify geographic eligibility by confirming your business operates or will operate in a qualified low-income community. Use the Community Development Financial Institutions Fund (CDFI Fund) Low-Income Community Database Tool available online to search your business address or proposed project location.
Assess your business activities against the requirements of a qualified active low-income community business (QALICB). Your company must derive at least 50% of gross income from active business operations in low-income communities, have at least 40% of employees performing services in these communities, or have at least 40% of tangible property located in qualifying areas.
Verify that your business doesn’t engage in prohibited activities, including operating golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks, gambling facilities, or liquor stores as principal business activities. Evaluate project size and capital needs—NMTC financing typically requires minimum project sizes of $5 million to $10 million in total capital needs due to substantial transaction costs.
Step Two: Develop Comprehensive Business Documentation
NMTC applications require extensive documentation demonstrating business viability, management capability, community impact potential, and financial sustainability. Preparing this documentation before approaching CDEs strengthens your application and demonstrates seriousness and preparation.
Create a detailed business plan outlining your company’s history, mission, products or services, market opportunity, competitive positioning, and growth strategy. The business plan should specifically address how your operations serve the low-income community where you’re located and what community benefits your business generates.
Prepare detailed financial projections spanning at least five to seven years showing revenue growth, expense management, profitability trajectory, and cash flow generation. Projections must demonstrate that your business can service NMTC debt or support equity returns while maintaining operational viability. Provide historical financial statements, including income statements, balance sheets, and cash flow statements for the past three to five years if your business has an operating history.
Document management team capabilities through detailed biographies, resumes, and track records for key executives and managers. CDEs evaluate management quality as a critical factor in investment decisions. Compile community impact documentation quantifying job creation projections, wage levels, benefit offerings, and other community benefits your business generates.
Step Three: Identify and Research Potential CDE Partners
Businesses don’t apply directly to the federal government for NMTC financing but instead pursue financing from CDEs that have received allocation authority. Identifying appropriate CDE partners represents a critical step in the application process.
Research CDFIs and CDEs serving your geography. Many CDEs focus on specific states, regions, or metropolitan areas based on their mission and capacity. The CDFI Fund maintains a CDE directory on its website listing certified CDEs, though not all have current allocation authority. Industry associations, including the New Markets Tax Credit Coalition, provide resources identifying active CDEs.
Evaluate CDE investment priorities and specialization. Some CDEs specialize in specific industries—such as healthcare, manufacturing, retail, and real estate development—developing deep expertise that benefits their portfolio companies. Review CDE websites, annual reports, and past transaction announcements to understand their investment thesis and successful transaction histories.
Assess CDE capacity and allocation availability. CDEs can only deploy NMTC capital when they have allocation authority from competitive CDFI Fund awards. Contact CDEs directly to inquire about current allocation availability, anticipated future allocation competitions, and timelines for considering new investment opportunities.
Step Four: Initiate Contact and Submit Initial Applications
Once you’ve identified promising CDE partners, initiate contact and begin the formal application process according to each CDE’s specific requirements. Initiate initial outreach through email or phone calls, introducing your business, summarizing your capital needs, highlighting the potential community impact, and expressing interest in NMTC financing.
Prepare a concise executive summary—one to three pages—outlining your business, capital requirements, QALICB qualification, and community impact. Submit formal applications following each CDE’s specific requirements. Application formats vary across CDEs—some provide structured application forms while others request specific documents in prescribed formats.
Thorough and well-organized applications significantly improve the success probability. Submit complete applications rather than partial submissions requiring follow-up. Respond promptly to information requests. CDEs conduct due diligence involving detailed questions about business operations, financial performance, market conditions, and community impact.
Step Five: Navigate Due Diligence and Underwriting
CDEs that advance your application beyond initial screening conduct comprehensive due diligence and underwriting, analyzing credit risk, business viability, community impact, and transaction feasibility. Prepare for an extensive financial analysis—CDEs review financial statements, tax returns, projections, and underlying assumptions with the same scrutiny as conventional lenders.
Facilitate site visits and management meetings. CDEs typically conduct site visits to business facilities, meet with management teams, tour operations, and assess business conditions firsthand. Prepare for these visits by organizing clear presentations and ensuring key team members are available for discussions. Reviewing successful NMTC project financing examples helps businesses understand what CDEs evaluate during due diligence.
Address legal and regulatory due diligence. CDEs review corporate organizational documents, ownership structures, material contracts, regulatory compliance, environmental assessments for real estate projects, and legal issues that might affect business viability or NMTC compliance. Document QALICB qualification comprehensively, providing a detailed analysis proving your business meets all requirements.
Step Six: Negotiate Terms and Structure Transactions
Applications that complete due diligence proceed to term sheet negotiation and transaction structuring—complex processes requiring experienced advisors. Review term sheets carefully, outlining proposed financing amounts, interest rates, amortization schedules, collateral requirements, personal guarantees, equity provisions if applicable, fees, covenants, and conditions.
Engage experienced new markets tax credit consultant professionals and NMTC counsel. The transaction structuring phase requires specialized expertise in both legal and financial matters. Hire attorneys experienced with NMTC transactions, tax advisors who understand program compliance, and financial advisors who can evaluate whether proposed terms align with your business objectives.
Participate actively in structural negotiations involving your business, the CDE, tax credit investors, leverage lenders (if applicable), and various advisors. Transaction structures accommodate multiple party interests while optimizing tax credit benefits, protecting investor capital, ensuring business viability, and maintaining program compliance.
Step Seven: Complete Closing and Begin Compliance Management
Successful negotiations culminate in a transaction closing—a complex process that generates extensive documentation and establishes compliance systems to operate throughout the seven years. Prepare for substantial closing costs, including legal fees, accounting fees, CDE fees, title insurance, recording costs, and other transaction expenses, which may total $250,000 to $500,000 or more.
Execute comprehensive transaction documentation, including loan agreements, investment documents, compliance agreements, security documents, and intercreditor agreements if multiple lenders are involved. Review all documentation carefully with counsel before signing.
Establish compliance monitoring systems tracking QALICB qualification, substantially all test satisfaction, financial covenant compliance, and reporting obligations. Assign responsibility for compliance management, establish processes for ongoing monitoring, and maintain regular communication with the CDE regarding compliance status.
Understanding the complete NMTC application process—from initial eligibility verification through closing and compliance—enables businesses to approach this financing opportunity strategically. To begin your NMTC application journey with expert guidance, request a project consultation from experienced community development finance professionals who can assess your eligibility and guide you through each step of the process.