Contributors:
Joe Hennessee, Strategic Financing Services Senior Manager
Janée Fenter, Strategic Financing Services Senior Associate
Trevor Nelson, Strategic Financing Services Senior Associate
Food banks, pantries and community food programs have established a longstanding tradition of serving those in need. Now, more than ever, access to quality and affordable food is crucial in the U.S. The good news is that there is a powerful tax credit program igniting change and propelling food banks toward a brighter future by providing attractive capital to organizations to accelerate change.
What Is the New Markets Tax Credit Program?
The New Markets Tax Credit (NMTC) is a federal program created to assist in neighborhood changes, job creation, commercial real estate projects, and new or existing businesses located in low-income census tracts in low-income communities. Food banks, specifically, are critical to these communities and can greatly benefit from the NMTC program.
How Can Food Banks Benefit From the NMTC?
Due to increased community needs and more stringent industry operating guidelines in recent years, food bank facilities have increasingly turned to NMTCs to finance new facilities and equipment or expand programming.
According to an industry report, there has been at least a 200% increase in the number of food bank facilities utilizing NMTCs. The push to serve more people in need has made it an opportune time to explore the possibilities for any food banks, pantries or community food programs looking to expand. In 2023, food bank recipients of NMTCs provided a staggering 181 million meals, underscoring the impact the NMTC can have on providing healthy food across the country.
While navigating the intricacies of the NMTC program can be complicated, the rewards are immense. Sponsor organizations can typically expect to receive 15% to 20% of the project cost from the NMTC, acting as a crucial catalyst for growth. For many food banks, this capital infusion enables them to realize ambitious expansion plans and offer services that were previously out of reach. These can include:
- Increasing distribution capacity
- Upgrading sustainable and energy-efficient practices
- Adding or expanding job training and certification programs
- Shortening-the-line initiatives
Even if a food bank, pantry or community food program has already invested capital into the expansion of real estate facilities or programming, NMTC regulations allow for eligible expenditures in the 24 months before closing to be used in the transaction. These expenditures can include pre-construction expenses (i.e., architects, engineers, land purchases, testing and more), construction costs, and even inventory. With this flexibility, the NMTC program has garnered tremendous appetite from funders, investors and sponsors across the nation, leading to a tremendous opportunity for those embarking on projects worth over $5 million.
NMTC Eligibility Requirements
Food banks, pantries and community food programs can qualify for an NMTC project if it is located in a qualified census tract. This is an area with high poverty rates and low median incomes. Additionally, the food bank must meet the definition of a qualified active low-income community business (QALICB), meaning that its primary purpose is to serve low-income individuals and families.
Lastly, having other funding available can demonstrate that the food bank is a viable and sustainable project that can benefit from the additional support provided by the NMTC program. This funding is not an eligibility requirement for the NMTC program but a point that Community Development Entity (CDE) lenders evaluate when determining financing.
How Does My Organization Get Started With Applying for the NMTC?
To start the process of attracting NMTC allocation, food banks, pantries and community food programs can begin by:
- Identifying severely distressed tracts in your area
- Determining if you meet the definition of a qualified active low-income community business (QALICB)
- Seeking out CDEs, once qualified, who are interested in supporting community development projects
A well-structured project plan outlining how the funding will be used and its potential impact can help attract NMTC allocation and secure the necessary funding. Cherry Bekaert is here to assist with:
- Navigating the complex process with ease
- Assisting in determining whether your food bank is eligible for the program and how much funding you could potentially receive
- Providing guidance on how to structure your project to maximize the impact of the tax credits
Guiding You Forward
Our team has a proven track record of guiding food banks, pantries and community food programs towards success through the NMTC program and stands ready to assist you on your journey towards a brighter, more nourished future. Cherry Bekaert’s Strategic Financing Services team is comprised of knowledgeable and responsive professionals who are here to guide you through the NMTC application process and beyond.
Reach out to any of our team members if you have questions or would like to learn more about this program.
Related Insights
- Case Study: New Markets Tax Credit Case Study for 4Roots Farm Campus
- Case Study: NMTC Case Study for Claussen Bakery
- Case Study: NMTC Case Study for Limehouse Produce
