Established as a part of the Community Renewal Tax Relief Act (P.L.106-554), the New Markets Tax Credit program (NMTC) is a bipartisan effort to stimulate investment and economic growth in low-income communities. The NMTC extends a helping hand to businesses in distressed communities by attracting private capital via a Federal Tax Credit program.
Through this program businesses may have access to flexible and affordable financing with forgivable loan aspects, allowing for projects to be completed that may not have been without the benefits of the NMTC. NMTC financing terms run for 7 years, and compared to traditional financing, may have lower interest rates, decreased origination fees, higher loan-to-values, and lower debt coverage ratios.
Answer the questions below to see if your project may be eligible for the NMTC. A Business Incentives & Tax Credits professional from BDO may contact you to discuss.
How does the NMTC program work?
Community Development Entities go through a competitive application process to receive tax credit authority from the CDFI Fund. A CDE is a domestic corporation or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in Low-Income Communities. CDE’s use their authority to offer tax credits to investors in exchange for equity in the CDE. Using the revenue from the equity investments, CDE’s can generate funds, such as loans and investments, to qualified businesses running in low-income communities with better rates and pliable features. Not only does the CDE benefit: over the next seven years the investor will collect a tax credit worth 39% of their original CDE equity stake.
How do low-income communities benefit?
Low-income communities’ benefit from these businesses supported by the NMTC because of the influx of jobs created, as well as access to improved facilities and services provided by these businesses. Since 2003, the NMTC program has created more than 830,000 jobs. Also, supporting the construction of 94.5 million square feet of office buildings, 67.2 million square feet of retail facilities, and 56.7 million square feet of manufacturing facilities. In the future as these communities continue to expand and develop, investors will become more attracted generating an effect that will stimulate additional investments. Economic Development organizations are able to point businesses wishing to expand in their communities to a potential valuable resource to help fill the company’s financial gap in order to complete their project.