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