New Markets Tax Credit Financing

Overview 

The New Markets Tax Credit (NMTC) Program is a powerful project financing tool designed to stimulate economic development and community revitalization in distressed communities. By leveraging federal tax credits, the program attracts private investment to support critical capital projects.

 

How the NMTC Program Works 

The CDFI Fund allocates tax credit authority to certified community development entities (CDEs) through a highly competitive application process. 

Key steps include: 

  • CDE Allocation: Certified CDEs apply to the CDFI Fund for NMTC allocation authority, demonstrating how they will deploy tax credits to create measurable benefits in low-income communities.
  • Project Identification: Once awarded an allocation, CDEs work with consultants and community partners to identify eligible projects within their service areas. 
  • Project Selection: Priority is often given to projects that create jobs, expand health care access, enhance public safety, or provide educational opportunities. 
  • Investment Structure: 
  • Investors make a qualified equity investment into a CDE in exchange for tax credits. 
  • The CDE uses those funds to make a Qualified Low-Income Community Investment into a Qualified Active Low-Income Community Business (QALICB)—the project entity. 
  • The QLICI typically functions as low-cost financing that may convert to a forgivable loan after a seven-year compliance period. 

 

Program Considerations 

  • NMTC allocations are limited and highly competitive, with demand exceeding available supply. 
  • NMTC financing typically provides approximately 17–20% of total project costs or eligible expenses. 
  • This subsidy often enables projects that would otherwise be infeasible or allows inclusion of essential design and service elements. 
  • Projects must be located in low-income communities, as defined by U.S. Census tract data. Many—but not all—tribal–project locations qualify. 
  • Low-income communities are generally defined as census tracts with a poverty rate of 20% or greater. 

 

Tribal-Specific Considerations 

NMTC transactions involve unique considerations for Tribal governments, including: 

  • Formation of a special purpose entity (QALICB) to receive financing 
  • Land lease agreements between the tribe and the project entity
  • A limited waiver of sovereign immunity required by investors 
  • Compliance with a seven-year NMTC compliance period 
 

Due to transaction and closing costs, NMTC financing is generally most effective for projects with budgets of $5 million or more. Many tribes have successfully completed NMTC-financed projects. 

 

How to Apply for NMTC Financing 

The first step is determining whether your project is eligible. In addition to census tract eligibility, factors such as project budget, timeline, and community impact influence the likelihood of securing NMTC financing. Each CDE has its own investment priorities, and navigating these requirements can be complex and time-consuming. 

Working with an experienced advisor can streamline the process and improve your chances of securing NMTC allocation for your project. 

 

Learn More 

KAI can help you to determine your elgibility, request support below. 

New Markets Tax Credit Financing

Overview 

The New Markets Tax Credit (NMTC) Program is a powerful project financing tool designed to stimulate economic development and community revitalization in distressed communities. By leveraging federal tax credits, the program attracts private investment to support critical capital projects.

 

How the NMTC Program Works 

The CDFI Fund allocates tax credit authority to certified community development entities (CDEs) through a highly competitive application process. 

Key steps include: 

  • CDE Allocation: Certified CDEs apply to the CDFI Fund for NMTC allocation authority, demonstrating how they will deploy tax credits to create measurable benefits in low-income communities.
  • Project Identification: Once awarded an allocation, CDEs work with consultants and community partners to identify eligible projects within their service areas. 
  • Project Selection: Priority is often given to projects that create jobs, expand health care access, enhance public safety, or provide educational opportunities. 
  • Investment Structure: 
  • Investors make a qualified equity investment into a CDE in exchange for tax credits. 
  • The CDE uses those funds to make a Qualified Low-Income Community Investment into a Qualified Active Low-Income Community Business (QALICB)—the project entity. 
  • The QLICI typically functions as low-cost financing that may convert to a forgivable loan after a seven-year compliance period. 

 

Program Considerations 

  • NMTC allocations are limited and highly competitive, with demand exceeding available supply. 
  • NMTC financing typically provides approximately 17–20% of total project costs or eligible expenses. 
  • This subsidy often enables projects that would otherwise be infeasible or allows inclusion of essential design and service elements. 
  • Projects must be located in low-income communities, as defined by U.S. Census tract data. Many—but not all—tribal–project locations qualify. 
  • Low-income communities are generally defined as census tracts with a poverty rate of 20% or greater. 

 

Tribal-Specific Considerations 

NMTC transactions involve unique considerations for Tribal governments, including: 

  • Formation of a special purpose entity (QALICB) to receive financing 
  • Land lease agreements between the tribe and the project entity
  • A limited waiver of sovereign immunity required by investors 
  • Compliance with a seven-year NMTC compliance period 
 

Due to transaction and closing costs, NMTC financing is generally most effective for projects with budgets of $5 million or more. Many tribes have successfully completed NMTC-financed projects. 

 

How to Apply for NMTC Financing 

The first step is determining whether your project is eligible. In addition to census tract eligibility, factors such as project budget, timeline, and community impact influence the likelihood of securing NMTC financing. Each CDE has its own investment priorities, and navigating these requirements can be complex and time-consuming. 

Working with an experienced advisor can streamline the process and improve your chances of securing NMTC allocation for your project. 

 

Learn More 

For more information or to discuss strategic readiness, request support below.