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. NMTC transactions involve Community Development Entities (CDEs), investors, legal counsel, and regulatory compliance requirements that demand strategic planning.
Understanding the NMTC Application Landscape
There are two separate application processes in the NMTC program. The first involves CDEs applying to the Community Development Financial Institutions (CDFI) Fund for allocation authority. The second involves your project applying to CDEs that already hold allocation authority for financing. This guide focuses on the project-level application process—how businesses and organizations secure NMTC financing from CDEs.
Phase One: Pre-Application Assessment and Preparation
Before submitting formal applications, invest significant effort in assessing your project’s NMTC readiness. Conduct a thorough eligibility self-assessment by verifying that your project is located in a qualifying low-income census tract. Confirm that your business qualifies as a Qualified Active Low-Income Community Business (QALICB) by reviewing requirements for active business operations, prohibited business types, and financial standards.
Calculate your capital needs with precision. NMTC transactions typically range from $2 million to $20 million. Develop a detailed budget showing how you’ll use NMTC proceeds. Prepare comprehensive financial projections covering at least the 7-year NMTC compliance period, including cash flows and revenue projections that demonstrate economic viability. Assemble a strong project team including experienced contractors, architects, engineers, and operators.
Phase Two: Identifying and Approaching Appropriate CDEs
With preparation complete, identify CDEs whose mission, geographic focus, and industry expertise align with your project. Research CDEs systematically by reviewing their websites, annual reports, and allocation applications that describe their strategic priorities. Some CDEs focus on specific industries, such as healthcare or manufacturing, while others concentrate on particular geographic regions.
Consider engaging NMTC consultants who maintain relationships with multiple CDEs and understand their allocation availability and approval criteria. Prepare a compelling executive summary that concisely presents your project concept, capital requirements, location, community impact, and job creation projections. Reach out to multiple CDEs simultaneously rather than pursuing a single option exclusively.
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 portfolio fit. 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 the project’s financial viability, community impact, job creation quality, and your team’s capacity to execute successfully. If the CDE views your project favorably, they’ll typically issue a Letter of Intent (LOI) or Term Sheet outlining the proposed financing structure, interest rates, fees, collateral requirements, and other key terms.
Review the LOI carefully with legal and financial advisors. Pay particular attention to CDE fees, which can range from 3% to 8% of the NMTC investment amount. Understand what services these fees cover.
Phase Four: Formal Application Submission
Upon execution of the LOI, the CDE will request a formal application package containing extensive documentation. Comprehensive applications typically include a detailed business plan, complete financial statements for the past three years, personal financial statements from guarantors, project pro forma financial statements, project budget itemizing all costs, evidence of site control, market studies supporting demand projections, and community impact documentation quantifying job creation.
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 with emphasis on community impact. Site visits typically occur during due diligence, during which CDE staff tour your operations and the proposed project location. Legal due diligence examines entity formation documents, contracts, intellectual property, litigation history, and regulatory compliance.
Third-party reports, including appraisals, environmental assessments, and market studies, provide independent verification. Budget for these costs, as they can total $50,000 to $150,000 or more.
Phase Six: Credit Committee Approval and Commitment
Following successful due diligence, the CDE presents your project to its credit committee for approval. These committees include board members, senior staff, and sometimes external advisors who review all material aspects of the transaction.
Credit committees may approve your project subject to conditions requiring specific actions before closing, such as obtaining additional equity commitments, securing permits, or strengthening management teams. Upon credit committee approval, the CDE issues a formal commitment letter obligating it to provide financing. This commitment typically remains valid for six to twelve months.
Phase Seven: Transaction Structuring and Documentation
The final phase involves intensive work by attorneys representing all transaction parties to document the complex NMTC structure. Core transaction documents include the partnership or operating agreement for the investment fund, loan agreements between the CDE and your business, security agreements and guarantees, subordination agreements, and put/call option agreements governing transaction unwind after seven years.
Document negotiation can extend several months, particularly for first-time NMTC participants. Engage experienced NMTC legal counsel to represent your interests.
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 financing covering immediate needs and subsequent draws released as you achieve construction milestones.
Timeline Expectations and Planning
From initial CDE contact to funding, expect 6 to 12 months for straightforward transactions, with complex deals potentially requiring 18 months or more. Begin the process well before your capital needs become urgent, building buffer time for unexpected delays or complications.
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, substantial community impact, experienced partners, and patience throughout the extensive due diligence and documentation process. For expert guidance navigating the NMTC application process, explore our NMTC consulting services, review successful applications in our project portfolio, or request a free project analysis to evaluate your application readiness.