Securing New Market Tax Credits (NMTCs) for your project requires navigating a sophisticated application process involving multiple stakeholders, extensive documentation, and careful coordination across several months. Unlike simple loan applications, NMTC transactions involve Community Development Entities (CDEs), investors, legal counsel, and regulatory compliance requirements that demand strategic planning and meticulous execution. Understanding each phase of the application journey enables project sponsors to prepare effectively, avoid common pitfalls, and maximize the likelihood of successful NMTC financing.
Understanding the NMTC Application Landscape
Before diving into the application process, recognize a fundamental distinction: there are actually two separate but interconnected application processes in the NMTC program. The first involves CDEs applying to the Community Development Financial Institutions (CDFI) Fund for allocation authority—the right to offer tax credits to investors. The second involves your project applying to CDEs that already hold allocation authority for financing. Most project sponsors engage in the second process, seeking financing from CDEs rather than becoming CDEs themselves.
This guide focuses on the project-level application process—how businesses, developers, and organizations secure NMTC financing from CDEs for qualifying projects. Understanding this distinction clarifies your role and the parties with whom you’ll interact throughout the process.
What Is the Application Process for Obtaining New Market Tax Credits for My Project?
The NMTC application process unfolds through distinct phases, each with specific requirements, stakeholders, and timelines that project sponsors must navigate successfully.
Phase One: Pre-Application Assessment and Preparation
Long before submitting formal applications, invest significant effort in assessing your project’s NMTC readiness and preparing the groundwork for a successful application.
Begin by conducting a thorough eligibility self-assessment. Verify that your project is located in a qualifying low-income census tract by using the CDFI Fund’s mapping tools. Confirm that your business or project qualifies as a Qualified Active Low-Income Community Business (QALICB) by reviewing the requirements for active business operations, prohibited business types, and financial standards. If your project involves any activities that might raise eligibility questions—residential components, alcohol sales, or operations near qualifying tract boundaries—address these issues definitively before proceeding.
Calculate your capital needs with precision. NMTC transactions typically range from $2 million to $20 million, with most falling in the $5 million to $15 million range. Projects requiring less than $2 million often struggle to justify the transaction costs, while those exceeding $20 million may need to combine multiple CDE allocations or supplement NMTCs with other financing sources. Develop a detailed budget showing how you’ll use NMTC proceeds, including construction costs, equipment purchases, working capital, and other project expenses.
Prepare comprehensive financial projections covering at least the seven-year NMTC compliance period. These projections should include monthly or quarterly cash flows for the first two years, then annual projections for years three through seven and beyond. Show how your project will generate sufficient revenue to service debt, cover operating expenses, and remain financially viable throughout the compliance period. Conservative assumptions strengthen credibility—experienced CDEs scrutinize overly optimistic projections.
Assemble a strong project team including experienced contractors, architects, engineers, and operators as applicable. CDEs evaluate team capability as carefully as project economics, knowing that strong management drives successful outcomes. Document your team’s relevant experience, particularly with similar projects or operations in comparable markets.
Phase Two: Identifying and Approaching Appropriate CDEs
With preparation complete, identify CDEs whose mission, geographic focus, and industry expertise align with your project. The CDFI Fund maintains a database of certified CDEs, but this list includes hundreds of organizations with varying focus areas, capacity, and allocation availability.
Research CDEs systematically by reviewing their websites, annual reports, and publicly available allocation applications that describe their strategic priorities. Some CDEs focus on specific industries like healthcare or manufacturing, while others concentrate on particular geographic regions. Certain CDEs specialize in real estate transactions, while others prefer operating businesses. Finding CDEs whose strategic focus matches your project increases application success rates significantly.
Consider engaging NMTC consultants or advisors who maintain relationships with multiple CDEs and understand their current allocation availability, approval criteria, and transaction preferences. These intermediaries can facilitate introductions, help position your project effectively, and navigate CDE selection strategically.
Prepare a compelling executive summary or project overview document that you can share with CDEs during initial conversations. This summary should concisely present your project concept, capital requirements, location, community impact, job creation projections, and team qualifications. Think of this as your project’s elevator pitch—clear, compelling, and focused on elements that resonate with CDE missions.
Reach out to multiple CDEs simultaneously rather than pursuing a single option exclusively. NMTC timelines can be lengthy, and CDEs may decline projects for various reasons including allocation capacity constraints, strategic misalignment, or portfolio concentration limits. Maintaining several active conversations increases your likelihood of securing financing within your required timeframe.
Phase Three: Initial Screening and Letter of Intent
Once you’ve identified interested CDEs, they’ll conduct initial screening to assess your project’s basic eligibility and fit with their portfolio. This screening typically involves a preliminary call or meeting where you present your project and answer questions about location, business activities, financing needs, and community impact.
CDEs evaluate several factors during initial screening beyond basic eligibility. They assess the project’s financial viability, examining whether projected revenues can support debt service on NMTC financing plus any additional capital. They evaluate community impact, considering job creation quantity and quality, services provided, and catalytic effects on surrounding areas. They consider your team’s capacity to execute the project successfully and operate the business sustainably. They also assess whether the project fits within their existing portfolio without creating excessive concentration risk.
If the CDE views your project favorably after initial screening, they’ll typically issue a Letter of Intent (LOI) or Term Sheet outlining the proposed financing structure, interest rates, fees, collateral requirements, covenants, and other key terms. This document isn’t a funding commitment but signals serious interest and provides a framework for continued discussions.
Review the LOI carefully with legal and financial advisors. Pay particular attention to CDE fees, which can range from 3 to 8 percent of the NMTC investment amount. Understand what services these fees cover, including transaction structuring, legal costs, ongoing compliance monitoring, and reporting requirements. Evaluate the proposed interest rate, comparing it to the below-market rates you expected and ensuring the overall cost of capital aligns with your financial projections.
The LOI may require exclusivity, preventing you from pursuing NMTC financing from other CDEs for a specified period. Negotiate reasonable exclusivity periods—typically 30 to 90 days—that give the CDE adequate time to conduct due diligence without unnecessarily constraining your options if the transaction fails to progress.
Phase Four: Formal Application Submission
Following LOI execution, the CDE will request a formal application package containing extensive documentation about your project, organization, and finances. While specific requirements vary by CDE, comprehensive applications typically include:
A detailed business plan describing your organization’s history, mission, products or services, target markets, competitive advantages, marketing strategies, and growth plans. This document should demonstrate deep market understanding and realistic assessment of opportunities and challenges.
Complete financial statements for your organization covering at least the past three years if you’re an existing entity. Include balance sheets, income statements, cash flow statements, and all supporting schedules. If you’re a startup, provide detailed financial projections with clear assumptions and sensitivity analysis showing how changes in key variables affect outcomes.
Personal financial statements from all guarantors or principals with ownership stakes exceeding certain thresholds. CDEs typically require personal guarantees, particularly for smaller transactions or higher-risk projects, making individual financial capacity relevant to the underwriting decision.
Project pro forma financial statements showing detailed income, expense, cash flow, and balance sheet projections for the NMTC-financed project specifically. These should integrate the NMTC financing terms into your overall capital structure, demonstrating that you can service all debt obligations while maintaining positive cash flow.
Project budget itemizing all costs including acquisition, construction, equipment, professional fees, financing costs, contingencies, and working capital reserves. The budget should reconcile with your capital stack, showing how NMTC financing combines with equity, conventional debt, and any other funding sources to cover total project costs.
Evidence of site control through ownership, purchase agreements, or lease arrangements showing you have legal rights to the project location. Include environmental assessments, zoning confirmations, and any land use approvals already obtained or in process.
Market studies or feasibility analyses supporting demand projections for your products, services, or facilities. Independent third-party studies carry more weight than internal analyses, though both have value in demonstrating market understanding.
Community impact documentation quantifying job creation, including the number, types, wages, and benefits of positions created. Detail the percentage of jobs targeted to low-income community residents and any workforce development partnerships supporting hiring and training. Describe additional community benefits like services provided, amenities created, or catalytic effects on surrounding businesses and property values.
Phase Five: Due Diligence and Underwriting
Upon receiving your application, the CDE conducts comprehensive due diligence examining all aspects of your project. This process typically requires three to six months, though complex transactions may extend longer.
The CDE’s underwriting team analyzes your financial statements, business plan, and projections using rigorous standards comparable to conventional lenders but with greater emphasis on community impact. They may request additional information, clarification of assumptions, or revisions to projections based on their market knowledge and underwriting standards.
Site visits typically occur during due diligence, with CDE staff touring your current operations if applicable and the proposed project location. They may meet with local officials, community leaders, and other stakeholders to assess community support and verify impact claims.
Legal due diligence examines entity formation documents, material contracts, intellectual property, litigation history, regulatory compliance, environmental issues, and all legal matters affecting project viability or creating liability risks. The CDE’s legal counsel will request extensive documentation and may identify issues requiring resolution before closing.
Third-party reports including appraisals, environmental assessments, market studies, and engineering reports provide independent verification of key assumptions and uncover potential risks. Budget for these costs in your project planning, as they can total $50,000 to $150,000 or more for larger transactions.
Phase Six: Credit Committee Approval and Commitment
Following successful due diligence, the CDE presents your project to their credit committee or investment committee for approval. These committees include board members, senior staff, and sometimes external advisors who review all material aspects of the transaction and vote on whether to proceed.
Prepare for the possibility that credit committees may approve your project subject to conditions requiring specific actions before closing. Common conditions include obtaining additional equity commitments, securing specific permits, modifying business plans, or strengthening management teams. Address conditions promptly and completely to maintain transaction momentum.
Upon credit committee approval, the CDE issues a formal commitment letter obligating them to provide financing subject to conditions specified in the letter. This commitment typically remains valid for a defined period—commonly six to twelve months—during which you must satisfy all closing conditions.
Phase Seven: Transaction Structuring and Documentation
The final phase involves intensive work by attorneys representing all transaction parties to document the complex NMTC structure. Your legal counsel, the CDE’s counsel, investor counsel, and potentially lender counsel if conventional debt is involved all participate in drafting and negotiating numerous agreements.
Core transaction documents include the partnership or operating agreement for the investment fund that receives investor equity, loan agreements between the CDE and your business, security agreements and guarantees, subordination agreements if multiple lenders are involved, and put/call option agreements governing transaction unwind after seven years.
Document negotiation can extend several months, particularly for first-time NMTC participants unfamiliar with standard structures and provisions. Engage experienced NMTC legal counsel to represent your interests while maintaining productive working relationships with other transaction parties.
Phase Eight: Closing and Funding
Closing involves executing all transaction documents, transferring funds, filing security interests, delivering closing certificates and legal opinions, and completing all other items required for funding. The closing process may occur in stages, with initial funding covering immediate needs and subsequent draws released as you achieve construction milestones or other agreed conditions.
Timeline Expectations and Planning
From initial CDE contact to funding, expect six to twelve months for straightforward transactions, with complex deals potentially requiring eighteen months or longer. Begin the process well before your capital needs become urgent, building buffer time for unexpected delays or complications.
Conclusion
The NMTC application process demands significant time, effort, and professional guidance, but the rewards—below-market financing enabling transformative projects in underserved communities—justify the investment. Success requires thorough preparation, realistic financial projections, strong community impact, experienced partners, and patience throughout the extensive due diligence and documentation process. By understanding each phase and preparing systematically, project sponsors position themselves for successful navigation of this complex but ultimately rewarding financing pathway.