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New Markets Tax Credit: What you need to know

FINANCING

This public-private partnership spurs investment in underserved communities across the United States.

Since its inception in 2000, the NMTC has secured billions of dollars in funding for projects in economically distressed communities. The effort has created more than a million jobs and financed more than 6,500 projects across all 50 states, the District of Columbia, and Puerto Rico.

4 key players

Community Development Financial Institutions (CDFI) Fund:

Treasury Department program that administers the New Markets Tax Credit

Private investors:

Funders—often banks or other financial institutions—that make a 7-year qualified equity investment in exchange for a tax credit

Community Development Entity (CDE):

Certified investment intermediary—typically an affiliate of a mission-driven organization, government entity, for-profit entity, or private financial institution—that serves low-income communities

Qualified active low-income community businesses:

For-profit or nonprofit entities that receive NMTC investments

5 steps to funding a community project

  1. CDEs apply for certification from the CDFI Fund.
  2. Once certified, CDEs apply for NMTC Allocation Authority from the CDFI Fund.
    The CDFI Fund has a limited allocation each year. Only about 1/4 of applications—which are evaluated on the community impact, business strategy, capitalization strategy, and management strategy—are approved.
  3. CDEs that receive allocation authority raise private funds to invest in qualified projects.
  4. Private investors make a Qualified Equity Investment in exchange for a 39% tax credit over 7 years.5
    NMTC investors typically receive an average annual after-tax return of 3% – 5%.6
  5. The credit typically funds about 25% of a qualifying project's total cost—with owner equity, borrowed funds, or other grants and credits making up the remaining 75%.
    Qualified projects must invest in a low-income community—that is, where the poverty rate is 20% or higher or the median income is less than 80% of an area's median income.5

Moving Forward Act.
This $1.5 trillion investment in infrastructure would expand the NMTC and make it permanent, eliminating the needs for extensions. (The current extension expires in 2025.) The bill passed by a large, bipartisan margin in the House and was received in the Senate in July 2020.

The positive impact of a New Market Tax Credit

Manufacturing or industrial businesses made up more than one-quarter of NMTC projects in 2019. Since it's a flexible credit, the financing supported a wide variety of initiatives.3
  • Manufacturing/industrial (83)
  • Health care facility (36)
  • Projects supporting childcare, youth, and families (29)
  • Mixed-use (26)
  • Grocery stores/healthy foods (17)
  • Nonprofit hubs and multipurpose social services campuses (16)
  • Retail, restaurants, and service sector (13)
  • Other miscellaneous small businesses and office space (12)
  • Schools (11)
  • Museums, theaters, arts, and culture (10)
  • Other miscellaneous community facility and nonprofit projects (10)
  • College or vocational training (9)
  • Business incubators and entrepreneurial research space (9)
  • Hotels and tourism (4)
  • Housing (3)

Benefits of NMTC loans:

Below-market interest rates

Flexible terms like longer amortizations

Higher loan-to-value ratios

Lower origination fees

In the wake of the COVID-19 pandemic and recession, corporations are looking to attract capital to underserved communities. Now more than ever, there's a push to revitalize neighborhoods, offer employment opportunities to residents, and jump-start small businesses. Consider whether the NMTC Program may be a good option for your next investment.

How can NMTC efforts benefit your community?

To learn more, reach out to your community Truist relationship manager.

Related resources

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    1"NMTC Qualified Equity Investment Report," Jan. 5, 2021, New Markets Tax Credit Coalition

    2"New Markets Tax Credit 20th Anniversary Report," July 1, 2020, New Markets Tax Credit Coalition

    3"New Markets Tax Credit 2020 Progress Report," June 2020, New Markets Tax Credit Coalition

    4"New Markets Tax Credit Program Fact Sheet," Sep. 16, 2020, Community Development Financial Institutions Fund

    5"NMTC Extended Through 2025 with $5 Billion Annual Appropriations," Jan. 7, 2021, The National Law Review

    6"New Markets Tax Credit 2019 Progress Report," July 15, 2020, New Markets Tax Credit Coalition

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