By Jeff Cotton, CEO - True Mountain Capital
Introduction
The New Markets Tax Credit (NMTC) program is a powerful tool for spurring economic development in underserved communities. Understanding the application process is crucial for businesses and organizations aiming to leverage this opportunity.
What is the NMTC?
Congress established the NMTC program in 2000 to encourage private investment into low-income communities. The New Markets Tax Credit (NMTC) Program is managed by the Community Development Financial Institutions Fund (CDFI Fund), which is part of the U.S. Department of the Treasury. Investors receive tax incentives in exchange for equity investments in Community Development Entities (CDEs), which then invest in qualified businesses and projects.
The NMTC application process
- Pre-Application Preparation
Before applying for the NMTC, ensure your project meets the eligibility criteria. You can use the True Mountain Capital NMTC Eligibility Tool to quickly determine this. Gather essential documents, such as business plans, financial statements, and impact projections. Partnering with a firm like True Mountain Capital is crucial to understanding eligibility and navigating the application process.
- Information Required for the NMTC Application
Business and Project Details: Describe your business, its mission, and the project for which you seek NMTC funding.
Financial Projections and Statements: Provide detailed financial forecasts, past financial performance, and funding needs.
Community Impact Analysis: Explain how your project will benefit the community, including job creation, services provided, and economic growth.
Governance and Management Information: Outline the qualifications and experience of your leadership team.
Compliance with NMTC Regulations: Demonstrate your understanding of and commitment to NMTC compliance requirements.
- The application submission
True Mountain Capital can provide an NMTC “intake” form which will completely itemize the items you need to provide. Complete this form meticulously, ensuring all the information is provided.
The Application Process
The flow chart below shows the structure and financial entities involved in the NMTC application process.
- CDFI Fund: A subset of the U.S. Treasury that administers the NMTC program, annually awarding $5Bn of NMTC allocation authority to CDEs.
- CDE (Community Development Entity): An organization certified by the CDFI Fund that applies for NMTC allocation and deploys that allocation into NMTC-eligible projects. CDEs receive the Investor’s equity and the Leverage Loan
- Investor: An individual or entity that makes an upfront equity investment into a NMTC-eligible project, in exchange for a 7-year stream of New Markets Tax Credits.
- Leverage Lender: An entity, typically affiliated with the Sponsor, that provides debt (the “Leverage Loan”) into a fund where it can be pooled with an equity investment from the NMTC Investor and ultimately lent to a QALICB to improve property.
- Investment Fund: A special purpose vehicle that (a) pools the capital provided by the leverage lender and the NMTC Investor and (b) funds a Qualified Equity Investment into one or many CDEs.
- QALICB (Qualified Active Low-Income Community Business): A business in a low-income, severely distressed census tract that creates many jobs and/or provides goods and services to the surrounding Low-Income Community
Please note that the CDE and project developer are required to monitor and report the project outcomes to ensure compliance with NMTC program requirements.
The timeline for the NMTC Application and Approval.
The timeline from application submission to final decision can vary, but typically ranges from several months to over a year. Factors influencing the timeline include the application's completeness, the demand for NMTC allocations, and the project's specific details.
Conclusion
Navigating the NMTC application process requires careful preparation and a thorough understanding of the requirements. By following these steps and working closely with a company like True Mountain Capital, businesses and organizations can successfully leverage NMTC funding to drive community development and economic growth.
Warm regards,
Jeff Cotton
President & CEO
True Mountain Capital, LLC
jcotton@truemountaincapital.com
(901) 347-7276