Contributor: Jason Callaham, Senior Manager
What Is a Community Development Financial Institution (CDFI)?
Community Development Financial Institutions (CDFIs) are financial institutions that aim to serve and empower low-income communities by providing affordable financial products and services to individuals and small businesses who may not have access to traditional banking services. CDFIs are essential to the economic development of low-income communities, and one of the ways they can do this is through the New Markets Tax Credit (NMTC) program.
Benefits of NMTC Allocations for CDFIs
The NMTC program is a federal initiative that offers tax credits and incentives to investors who invest in designated Community Development Entities (CDEs) to stimulate economic development in low-income communities. These CDEs use the allocated funds to invest in businesses and real estate developments in these communities, creating job opportunities and economic growth.
CDFI certification automatically enables an entity to qualify for CDE certification and apply to receive an NMTC allocation, which provides them with a powerful tool to finance projects that may not be possible otherwise. The program offers flexible, low-cost capital that can be used to fund a wide range of proposals, including community facilities, affordable housing, and small business development.
How NMTC Allocations Empower Low-Income Communities
The NMTC program provides significant benefits to the low-income communities that CDFIs serve. By financing community facilities, affordable housing, and business development, CDFIs can help revitalize distressed neighborhoods. For example, a CDFI could use NMTCs to fund the construction of a new health clinic or community center in a low-income neighborhood, creating jobs during the construction phase while also providing access to critical resident services. The NMTC program also supports small business growth in these communities by granting capital loans and other forms of financing.
Leveraging NMTC Allocations To Expand Impact and Attract Investment
The NMTC program can significantly benefit CDFIs. By receiving NMTC allocations, CDFIs can increase their capacity to finance projects and expand their impact in low-income communities. The program can also help CDFIs attract new investors and partners interested in supporting community development. CDFIs can generate an additional source of revenue through NMTC allocation management, which a CDFI can utilize to further its mission of impacting low-income communities.
The Importance of NMTC Allocations for CDFIs and Low-Income Communities
The NMTC program provides a powerful tool for CDFIs to finance projects and create economic opportunities in low-income communities. By leveraging NMTC allocations, CDFIs can finance diverse projects such as community facilities, affordable housing, and small business development while providing these communities with vital services and job opportunities. Moreover, the program presents substantial benefits to CDFIs, including enhanced capacity to fund projects and a source of revenue. Thus, the NMTC program is a crucial tool used by CDFIs to promote economic development and empower low-income communities.
Your Guide Forward
With a rich history of involvement with NMTCs and other financing programs for over two decades, our Strategic Financing Services team has a proven track record of successfully closing numerous NMTC transactions within the health and wellness, manufacturing/industrial, mixed-use real estate, and not-for-profit sectors. At Cherry Bekaert, our team is well-positioned to help you navigate the landscape and competitive application process, as well as advise on other related strategic planning.
