The NMTC Program Stimulates New Investments in Low-Income Communities
New Market Tax Credits Program
NMTC Incentivize Investments in Low Income Communities for Economic Revitalization
NMTC program investors make equity investments in companies known as Community Development Entities (CDEs) that in turn make loans to businesses in low-income communities. These investments are often designated as qualified equity investments to take advantage of tax incentives. The intent of the program is to spur positive economic revitalization in these areas.
Learn How CBO Financial Sources Community Development Financing for Projects in Low-Income Communities
New Market Tax Credit Financing Structure
- Potential new or additional source of capital for qualified borrowers
- Provide capital where previously unavailable
- Result in availability of capital at substantially lower cost
- Result in conversion of up to 30% of project debt to borrower equity
- NMTC essentially guarantees return of investment plus a return on the investment regardless of borrower performance (tax incentives)
- Investors can further increase investment return and project subsidies with additional tax credits (e.g., historic and renewable tax credits and tax incentives)
- Opportunity to combine public funding with tax credits to induce real estate or project development in a qualified active low income community
- Potential additional sources of revenue to agency as a CDE (tax incentives)
- Potential positive economic and real estate revitalization in low income community facilities
Important Considerations for NMTC Financing
What is a Low-Income Community for the NMTC Program?
NMTC Program for Low Income Communities
The New Markets Tax Credit program is designed to incentivize investment in low-income communities. The minimum requirement is that an eligible project must be in a Census Tract with a poverty rate of 20% or higher, or a median family income at or below 80% of the area median family income; however, 75% of the NMTC program is restricted to areas of higher distress, or 30% or higher poverty or 60% or less in area median family income.
What are Eligible NMTC Activities?
Eligible NMTC Investment Projects for NMTC Allocations
Most project types are eligible, except for a short list of businesses the government does not want to promote in low-income communities, including liquor stores, casinos, massage parlors, racetracks, golf courses and others.
How to Access the NMTC Program?
The process to secure NMTCs for a project is as follows:
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Develop a comprehensive project plan & financing request package
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Secure commitment letters for all other sources of financing (e.g. debt, donations, local subsidies)
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Conduct request for proposals to potential NMTC equity investors, review proposals and select investor
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Update the financing request package to include the above commitments
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Identify all CDEs with allocation available and project site in their service area
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Distribute to all potential CDEs
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Follow up with each CDE recipient to secure term sheets
What Requirements Must Be Met by the Borrower to Qualify?
The borrower must be a Qualified Active Low-Income Community Business (QALICB) under NMTC regulations, which is a business that meets the following requirements:
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It is a corporation (for profit or nonprofit), or a partnership
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It actively conducts any business except residential rental, development, sale or licensing of intangibles, golf course, golf club, massage parlor, hot tub facility, suntan facility, racetrack, off-sale liquor
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Less than 5% of its assets consist of “collectibles” (e.g., antiques, jewelry, wine, etc.)
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Less than 5% of its assets consist of “financial property” (e.g., stocks, bonds, cash other than reasonable working capital)
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At least 40% of its tangible assets are located in low-income community facilities
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At least 40% of employee services are rendered in low-income communities