NMTC
New Markets Tax Credit Program

The NMTC Program Stimulates New Investments in Low-Income Communities

The New Markets Tax Credit (NMTC) program is a federal subsidy program designed to incentivize investments into low-income communities, providing approximately 25% of project cost in flexible, below market funding that is typically forgiven at the end of the 7-year compliance period.
New Markets Tax Credits

NMTC Incentivize Investments  in Low Income Communities for Economic Revitalization

NMTC program investors make investments in companies known as Community Development Entities (CDEs) that in turn make loans to businesses in low-income communities. The intent of the program is to spur positive economic revitalization in these areas.

A CBO Financial Subsidiary, Community Development Funding, LLC was one of only 66 groups to receive New Markets Tax Credit allocation in Round 1 in 2003, and one of 62 groups to receive an allocation in Round 2 – one of only 10 organizations to receive both 1st and 2nd round allocations. Since then, the CBO team has gone on to secure additional allocations for our own CDE, and assisted numerous clients with establishing CDEs and successfully applying for a direct New Markets Tax Credit allocation award. The New Markets Tax Credit program create benefits to tax credit investors, businesses that need capital, and state and local government and economic development authorities seeking to improve low income communities.

new market tax credit financing structure

Discover the unique benefits to borrowers, investors, and the US Economic Development Administration (EDA) from the NMTC Program.
Borrowers
Investors
States - Municipalities - EDAs
Build Communities

Borrower Benefits

  • 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
Leverage Tax Credits

Investor Benefits

  • 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)
Facilitate Economic Revitalization

Public Benefits

  • 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

We are here to help you with any questions you might have. Feel free to submit a Free Project Analyis Request for more detailed information regarding your specific scenario.

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 % of my project can the NMTC Program finance?

The New Markets Tax Credit program can generally provide 20% to 25% of a project cost in very flexible financing, which is typically forgiven at the end of a seven-year compliance period during which the borrower provides annual reports regarding the positive impacts of the specific project type.

How Does the NMTC Program Work?

New Markets Tax Credit program provide an investor with a 39% tax credit paid over seven years, at a rate of 5% in each of the first three years and 6% over the next four years. The investor pays a discounted amount up front for the stream of credits over the seven-year compliance period; the investor typically receives return of both principal and interest in the form of a tax credit, allowing the New Markets Tax Credit program portion of the loan to be forgiven.

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.

A new markets tax credit program investment is made in the form of equity-like loans to businesses located in low-income census tracts or ones that predominantly serve or primarily employ low-income persons.

New markets tax credit program financing typically is applied as “gap financing” for the development of commercial, industrial, and retail real estate projects (including community facilities).

Historically, New Markets Tax Credit financings have covered a wide spectrum of project types, including industrial, commercial, renewable energy and environmental remediation projects nationwide and in the U.S. Territories.

How to Access the NMTC Program?

How to Access the New Markets Tax Credit Program

The New Markets Tax Credit program is allocated annually by an agency within the U.S. Treasury Department named the CDFI Fund to Community Development Entities (CDEs). There are two ways to access the New Markets Tax Credit program.

To fund a single project, you will need to solicit community development entities that currently have an allocation and have an investment strategy that complements your business model and geographic location. If you have a rather large project type or a pipeline of a specific sort of project type in need of financing, the best option is to form a CDE and apply to the CDFI Fund for an allocation.

Community Development Entities are private companies that have a primary mission of providing investment capital to low-income communities, and are accountable to those communities through engagement of community representatives in prioritizing investments. Upon receiving an allocation award CDEs are responsible for investing their allocations into individual projects.

CDEs typically have specific types of projects they are interested in, for example manufacturing, office/retail, community services, renewable energy and others. CDEs have a specific geographic service area, however approximately ½ of awards go to CDEs with a national service area, which includes the 50 states and U.S. Territories. CDEs are looking for high impact, “shovel ready” projects (meaning ready to pull a building permit) that have not been able to secure sufficient capital from conventional sources to move forward. NMTCs can typically close a gap of 20% to 25% of a project cost in very flexible financing.

The first step in securing NMTC program credits for a project is to develop a financing request that highlights the positive economic, social and environmental impacts of the project being financed.

The process to secure NMTCs for a project is as follows:

  1. Develop a comprehensive project plan & financing request package
  2. Secure commitment letters for all other sources of financing (e.g. debt, donations, local subsidies)
  3. Conduct request for proposals to potential NMTC equity investors, review proposals and select investor
  4. Update the financing request package to include the above commitments
  5. Identify all CDEs with allocation available and project site in their service area
  6. Distribute to all potential CDEs
  7. Follow up with each CDE recipient to secure term sheets

What are CDEs looking for?

CDEs are looking for high-impact projects that are ready to pull a building permit but have been unable to secure enough capital from conventional sources to move forward.

A menu search of our site will reveal that most CDEs target specific project types and geographic areas with low income communities. CDEs are looking to fund projects that will have meaningful economic impacts in their communities which are qualified active low income tax areas that would be ideal for investors. This means CDFI fund tax credit project sponsors must be able to express (and back up) metrics such as job creation, environmental impacts, community and commercial goods provided, equity investments and more in this qualified active low income communities.

Sponsors should consider commissioning a community impact analysis of their project to help understand the direct and indirect impacts it will have. This will allow CDEs to see how the project will improve its NMTC portfolio.

Priorities for CDEs include:

  1. Significant positive community impact and likelihood to attract additional investment
  2. Use and building permits ready to be pulled
  3. Committed financing for 75% to 80% of the project cost, including a NMTC Equity Investor.
  4. An experienced project sponsor
  5. Legal and accounting professionals engaged

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:

  • It is a corporation (for profit or nonprofit), or a partnership
  • 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
  • Less than 5% of its assets consist of “collectibles” (e.g., antiques, jewelry, wine, etc.)
  • Less than 5% of its assets consist of “financial property” (e.g., stocks, bonds, cash other than reasonable working capital)
  • At least 40% of its tangible assets are located in low-income community facilities
  • At least 40% of employee services are rendered in low-income communities

Can I recoup predevelopment costs?

Project expenditures made in the 24 months prior to funding of the New Markets Tax Credit program transaction can be included in the NMTC financing.

What is the interest rate and term?

CDEs typically target a blended interest rate that is approximately 50% below market.

How long does it take to get NMTCs?

The process of obtaining NMTCs for either a CDE or a project type can vary widely, particularly as this is a highly competitive market. New allocations and allocation availability in the New Markets Tax Credit program are typically announced each year by the CDFI Fund. The CDFI Fund is in control of allocation availability and eligible census tracts with qualified low income or distressed communities. Once a CDE applies, it typically takes 7-10 months for the awards to be announced. The CDE then has five years to use their allocation from the NMTC program.

For projects, searching for credits from the New Markets Tax Credit program from CDEs that have received allocations can take months or years, or might never happen. Projects that can clearly articulate meaningful economic and community development outcomes will have a higher chance of obtaining New Markets Tax Credit financing.

Can NMTCs be used with other government programs?

Yes. The New Markets Tax Credit program can be paired with most federal, state and local programs, with one notable exception: they may not be combined with Low-Income Housing Tax Credits.

How do I find CDEs with NMTC allocation?

The CDFI Fund website provides a search engine for CDEs that provide financing in your area. You can research these CDEs to determine whether any have mission statements that might cover your project. In the event you find this search and the attempt to make connections overwhelming, you can use CBO Financial’s Free Project Analysis service to get expert advice on innovative financing avenues for your project.

NMTC Financing Property Types & Locations

Please contact us regarding a menu search for specific geographic locations. A menu search will also show that the New Markets Tax Credit NMTC program credits are typically applicable for the following property types:

  • NMTC Program for Arenas
  • NMTC Program for Affordable Housing
  • NMTC Program for Banking Services
  • NMTC Program for Financial Services
  • NMTC Program for Commercial Usage
  • NMTC Program for Education Facilities
  • NMTC Program for Energy Development Facilities
  • NMTC Program for Entertainment Purposes
  • NMTC Program for Public Assembly Purposes
  • NMTC Program for Farmland Areas
  • NMTC Program for Food Sales
  • NMTC Program for Food Services
  • NMTC Program for Healthcare Facilities
  • NMTC Program for Hotels
  • NMTC Program for Industrial Facilities
  • NMTC Program for Infrastructure Purposes
  • NMTC Program for Lodging Facilities
  • NMTC Program for Residential Use
  • NMTC Program for Mixed-Use Purposes
  • NMTC Program for Multi-Family Housing
  • NMTC Program for Office Facilities
  • NMTC Program for Parking Facilities
  • NMTC Program for Public Services
  • NMTC Program for Religious Worship Facilities
  • NMTC Program for Residential Purposes
  • NMTC Program for Retail Locations
  • NMTC Program for Senior Housing
  • NMTC Program for Single-Family Housing
  • NMTC Program for Stadiums
  • NMTC Program for Storage Facilities
  • NMTC Program for Student Housing Purposes
  • NMTC Program for Technology Facilities
  • NMTC Program for Science Facilities
  • NMTC Program for Utility Purposes
  • NMTC Program for Warehouse Facilities
  • NMTC Program for Workforce Facilities

Does Your Project Qualify for Low-Cost Financing or New Markets Tax Credits?

Reach out to our specialists to discuss how we can work together.
Get a Free Project Analysis

Other Financing Services

CBO Financial provides a range of services to help plan and finance projects located in low income communities, including below-market loans and subsidies.

Project Planning And Financial Modeling

Start a project right by identifying anticipated predevelopment expenses, project budget, sources/uses of funds, cash flow forecasts and debt service coverage.
Project Planning And Financial Modeling

Financing Request Package Development

Developing a comprehensive Financing Request Package (FRP) is an important first step in securing financing and/or project subsidies for community devlopment.
Financing Request Package Development

CDE Certification Application Services

CBO Financial can help guide you through the process of assembling the board and take a leadership role in developing and filing the certification application.
CDE Certification Application Services

CDFI Certification Application Services

CBO Financial can assist with the Community Development Financial Institution certification application process for existing lenders.
CDFI Certification Application Services

New Markets Tax Credits Placement Services

CBO Financial can provide an access point to the NMTC industry to secure flexible, forgivable financing for up to 25% of project cost.
New Markets Tax Credits Placement Services

New Markets Tax Credits Allocation Application Services

For entities with a pipeline of projects, an application for a direct allocation of NMTCs may be appropriate. Applications are accepted annually.
New Markets Tax Credits Allocation Application Services

Historic Tax Credit Application Services

CBO Financial can assist with the Community Development Financial Institution certification application process for existing lenders.
Historic Tax Credit Application Services

Pennsylvania RACP Application Preparation

Prepare a compelling Part I application to the Pennsylvania (RACP), to be followed by Part II if/when invited to apply.
Pennsylvania RACP Application Preparation

You see challenges. We see possibilities.
Your community sees change.

Established in 1999, CBO Financial is a financial consulting firm that specializes in helping businesses secure funding for development projects in the nation’s most distressed communities. Our experts understand how to present economic, environmental, and societal benefits to public and private organizations so your project receives the funding it needs to move forward quickly and reasonably. A CBO Financial subsidiary, Community Development Funding, LLC, has received six awards under the federal New Markets Tax Credit program totaling $150M. In addition the team has taken a leadership role in securing 18 awards for clients totaling over $400M.
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The funding is out there

CBO can be your access point for a variety of flexible financing sources including gap financing using New Markets Tax Credits, Historic Tax Credits, Tourism Tax Credits, Property Assessed Financing, Opportunity Zone Funds and others.
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 a Significant Impact

CBO is on a mission to help elevate the lives of people living in distressed communities by providing flexible, below-market gap financing to high-impact projects that cannot otherwise move forward. Does your project qualify for financing?
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Million-dollar stories

The CBO team has funded over $1 billion in projects for local and national nonprofits, for-profit developers, and municipal agencies. Our team can help you find the low-cost financing or new market tax credits needed for your projects.
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Does Your Project Qualify for Low-Cost Financing or New Markets Tax Credits?

Reach out to our specialists to discuss how we can work together.
Get a Free Project Analysis