Businesses seeking capital and tax incentives to support expansion face numerous financing options across federal and state programs. While state tax incentive programs offer valuable benefits tailored to local economic development priorities, the federal New Markets Tax Credit (NMTC) program provides unique advantages for certain types of businesses and projects. Understanding which businesses benefit more from NMTC compared to state tax incentives helps entrepreneurs identify the optimal financing strategy for their specific circumstances and growth objectives.
Capital-Intensive Businesses With Large Financing Needs
Businesses requiring substantial capital investments—typically $5 million or more—often find NMTC financing more advantageous than state tax incentives. The NMTC program’s structure, delivering a 39% tax credit to investors through Community Development Entities (CDEs), enables these organizations to provide significant debt or equity capital to qualified active low-income community businesses (QALICBs). This capital deployment mechanism directly addresses financing gaps that companies struggle to fill through conventional lending.
Manufacturing facilities requiring expensive production equipment, healthcare providers building clinical facilities, food retailers developing stores in underserved markets, and mixed-use real estate developments all exemplify capital-intensive projects that benefit substantially from NMTC financing. The program’s ability to subsidize interest rates or reduce capital costs creates financing terms that make large projects feasible when conventional financing proves insufficient.
State tax incentive programs typically offer tax credits or abatements that reduce a business’s tax liability but don’t directly provide capital. A state investment tax credit might reduce taxes by 10% of equipment purchases, but these incentives assume the business can independently secure financing. For companies facing capital access challenges despite having viable business models, state tax incentives provide insufficient support. NMTC financing addresses capital access issues, while state incentives alleviate tax burden concerns.
Businesses in Economically Distressed Communities
The NMTC program’s geographic targeting creates particular advantages for businesses operating in low-income communities defined by census tract poverty rates or median family income thresholds. While some state incentive programs incorporate geographic targeting through enterprise zones, many state programs apply broadly without a specific focus on economically distressed communities.
Businesses in low-income communities often face capital access barriers that stem from lender perceptions about neighborhood risk, limited local collateral values, or concerns about market demand. These businesses may have sound business models, but struggle to secure financing on reasonable terms because of their location. NMTC financing specifically addresses this geographic discrimination by directing capital to these underserved areas.
A grocery store located in a food desert, a manufacturing facility creating jobs in a high-poverty urban neighborhood, or a healthcare clinic serving an economically distressed rural community all exemplify businesses whose location makes NMTC financing particularly valuable. The program’s community impact focus means that CDEs prioritize businesses that generate substantial community benefits through job creation, essential service delivery, or neighborhood revitalization.
Businesses With Limited State Tax Liability
Businesses with limited state tax liability, such as those with small profit margins, early-stage operations, or business structures that minimize state tax exposure, often cannot fully utilize state tax credits. Many state incentive programs provide credits against state income taxes, and businesses without sufficient tax liability cannot benefit unless the state allows refundability or extended carry-forward periods.
NMTC financing provides value regardless of the business’s own tax position because the tax credits flow to investors rather than the business itself. A startup manufacturer with minimal taxable income for several years can still benefit from NMTC financing through below-market interest rates or favorable loan terms, even though it couldn’t utilize state tax credits during those early years.
Nonprofit organizations and social enterprises operating as tax-exempt entities represent an extreme case where state tax incentives provide no value whatsoever, while NMTC financing remains accessible. Community development financial institutions, nonprofit healthcare providers, social service organizations, and mission-driven businesses structured as nonprofits can access NMTC financing, even if they have no tax liability to reduce through state incentives.
Multi-State or Expanding Businesses
Businesses operating across multiple states or planning expansion into new markets often find NMTC financing more efficient than coordinating various state incentive programs. Each state maintains its own tax incentive programs, which have unique rules, application processes, qualification requirements, and compliance obligations.
NMTC financing operates under consistent federal rules, regardless of where projects are located, provided they meet the requirements of low-income communities. A restaurant chain expanding into multiple low-income communities across different states can pursue NMTC financing through a single CDFI consultant or partner, utilizing consistent processes and structures. This simplicity reduces administrative burden compared to pursuing separate state incentive programs in each expansion market.
National or regional CDEs with multi-state allocation authority can support portfolios of projects across their service areas, creating opportunities for businesses to access capital for expansion through an established CDE relationship rather than building new relationships with state agencies in each market.
Businesses in Industries Underserved by State Programs
State programs often target specific industries based on state economic development priorities. States commonly offer generous incentives to manufacturers, technology companies, or corporate headquarters. Businesses in sectors that don’t align with these priorities may find limited state incentive availability.
The NMTC program demonstrates greater industry flexibility, supporting diverse business types as long as they meet location and community benefit requirements. Grocery stores, healthcare clinics, childcare centers, community facilities, small-scale manufacturers, and service businesses can all access NMTC financing if appropriately located and structured.
Food retail represents an obvious example. Few states offer substantial incentives specifically targeting grocery stores, despite their importance to community health and food access. The NMTC program has supported numerous grocery store projects in food deserts, recognizing their community impact even though they don’t align with typical state priorities. Healthcare providers serving low-income populations similarly benefit from the NMTC financing’s industry flexibility.
Businesses Requiring Patient Capital and Flexible Terms
The NMTC structure enables CDEs to provide financing with terms that conventional lenders and many state programs cannot match. Below-market interest rates, extended amortization periods, interest-only periods, flexible payment schedules, and subordinated debt positions all become possible when the 39% tax credit value subsidizes the financing.
Early-stage manufacturers building market share, healthcare providers establishing new practices with initially limited patient volumes, or retail businesses in underserved markets with uncertain demand patterns, all exemplify businesses needing patient capital with flexible terms. State incentives that reduce tax liability don’t provide the cash flow relief that NMTC-subsidized financing delivers.
Some NMTC structures incorporate grant-like features where portions of the financing don’t require repayment, effectively reducing the business’s capital costs. These quasi-equity structures prove particularly valuable for companies whose business models involve substantial upfront investment with delayed returns. Reviewing successful NMTC projects demonstrates how flexible financing structures support a diverse range of business models.
Real Estate Projects With Mixed-Use Components
Real estate developments that combine commercial, retail, office, or community facility components often find NMTC financing more accommodating than state programs, which typically segregate residential, commercial, and industrial projects with different incentive structures.
A mixed-use development featuring ground-floor retail, upper-floor office space, and community meeting facilities can access NMTC financing for both the commercial and community components. State programs might offer incentives for specific elements, but rarely address the complete capital stack for complex mixed-use projects.
Community facilities, including childcare centers, performing arts venues, workforce training facilities, or community health centers, benefit particularly from NMTC financing because their community impact missions align with program goals, even when they don’t generate substantial tax revenue that state incentives could reduce.
Businesses in Rural and Underserved Markets
While state incentive programs often concentrate resources in urban centers, the NMTC program’s geographic flexibility allows it to serve rural low-income communities where state incentive activity may be limited. Rural manufacturers, agricultural processors, healthcare providers, and retail businesses in small towns can access NMTC financing if they meet the requirements of a low-income community.
Rural CDEs specializing in serving non-metropolitan areas have developed expertise in structuring NMTC transactions appropriate to rural contexts, including smaller transaction sizes, agricultural industry knowledge, and understanding of rural market dynamics. These specialized CDEs provide financing access that both conventional lenders and state programs may not adequately serve.
Making the Right Choice for Your Business
Determining whether NMTC financing or state tax incentives better serve your business requires careful assessment of your capital needs, tax position, location, industry, and growth strategy. Capital-intensive businesses in low-income communities with limited state tax liability often find NMTC financing superior. Profitable companies in locations well-served by conventional financing may prefer state incentives that directly reduce tax burdens.
Many businesses benefit from combining NMTC financing with available state incentives, layering multiple programs to optimize total benefits. Working with experienced NMTC consultants who understand both NMTC structures and state incentive landscapes ensures you identify the optimal financing strategy. To explore which approach best fits your specific circumstances, determine which approach best suits your particular circumstances, request a project analysis to optimize capital access and maximize suits your specific circumstances, request a project analysis to optimize capital access and maximize request a project analysis to maximize capital access and incentive benefits while managing complexity effectively.