Unlocking Scarce Resources with New Markets Tax Credits

Article

September 16, 2024

Contributors:
David Altman | Strategic Financing Services Senior Manager
Trevor Nelson | Strategic Financing Services Manager

New Markets Tax Credits

The New Markets Tax Credit (NMTC) is a federal program designed to encourage investment in low-income communities, providing Community Development Entities (CDEs) with tax credits to invest in Qualified Active Low-Income Community Businesses (QALICBs).

NMTC transactions incentivize investment for economic development without requiring federal funds, as the capital comes from businesses and financial institutions with federal tax obligations. These tax credits are worth 39% of the investment over seven years, making them attractive financing options for businesses and organizations operating in low-income communities.

Securing a Competitive Advantage

In order to obtain a competitive edge and secure access to limited resources through NMTCs, businesses and organizations must have a comprehensive understanding of the program's scope. They must also be able to identify strategic uses for the funds, evaluate potential qualifying manufacturing sites, highlight unique attributes that attract financing, and commit to providing benefits to the low-income community while emphasizing why the project could not move forward “but for” the tax credit equity investment.

The New Markets Tax Credit program is competitive, with CDEs applying to the Community Development Financial Institution (CDFI) Fund within the U.S. Department of the Treasury for NMTC allocations. The applications are reviewed and scored, with the most recent round awarded $5 billion in the fall of 2023 to 102 out of 197 applicant CDEs. CDEs take the awarded allocation and pair it with QALICBs. The next awards are due in the fall of 2024, with applications for a $10 billion round anticipated to be due in Q1 2025.

How to Qualify

To qualify for NMTCs, QALICBs typically must be a corporation (including a nonprofit corporation) or partnership, have income from a location within a low-income community and have services that meet certain criteria. The most competitive qualifying locations are based on the following criteria:

Criteria	Poverty Rate	Median Family Income	Unemployment Rate	Location
Primary qualifying locations	> 30%	< 60%	1.5 times national average or non-metropolitan county	Low-income community

Project Structuring

To structure a good NMTC project, businesses and organizations need to demonstrate a significant quantifiable community impact (such as the creation of jobs paying living wages or providing services otherwise not available within the community), be prepared to demonstrate a need for subsidized funds and have other sources of funds committed. In the competitive landscape, many CDEs will prioritize projects located in targeted geographies, such as non-metropolitan census tracts or areas of high distress and have a sponsor and CDE that fit their business strategy well.

Results of Strategic Financing Services

The Strategic Financing Services platform at Cherry Bekaert helps organizations throughout the U.S. access and manage NMTC capital through allocation applications, placement, compliance and asset management. Our solutions have directly contributed to the creation of 28,930 jobs and the support of 684,450 people through community services. Additionally, our partners have constructed 10.9 million square feet of real estate and have facilitated over 100 investments from Alaska to Florida in the pursuit of improving communities.

Your Guide Forward

NMTCs are an attractive financing option for businesses and organizations operating in low-income communities. With the help of professionals like Cherry Bekaert’s Strategic Financing Services team, businesses and organizations can access and manage NMTC capital to create significant community impact and achieve their financial goals.