New Market Tax Credit

Guest Post by Ebonie Atkins

Recently the Virginia Economic Developers Association (VEDA) offered a webinar on New Market Tax Credits, a project financing tool that may be helpful for economic developers in distressed communities. Below is a brief summary of the program.

The New Market Tax Credit program is a community reinvestment tool that provides financial backing for commercial businesses in low income urban and rural communities. Through the federal program a Community Development Entity (CDE) is allocated new market tax credits to award to investors who provide financial backing to new or existing businesses in low-income census tracts. The program is ideal for large budget projects ($5 Million+) that create jobs or will have a substantial economic impact on the area. Investor funds are pooled with funds from a lender and borrower funds to support development of the Qualified Active Low Income Community Business (QALICB) project. The investor funds and lender funds are considered separate, fixed-rate loans for a 7-year period, during which the investor is given a tax credit based on the amount of the investment. After the 7 years the investor portion drops off and the remaining debt is refinanced into a conventional loan.

 

Pic for Tax Credit1

 

Pic for Tax Credit2

Through carefully weighing the benefits and drawbacks of the program, NMTCs can be a useful tool to support commercial, industrial, or mixed-use investments for economic development. It must be stressed that NMTCs are not for residential projects. If there is residential component to the project it must not contribute more than 80% of the project revenue. The benefits to project stakeholders make acquiring NMTCs a highly competitive process. A compelling story, with clear project goals is necessary for those interested in financing a community investment project through the program. For additional information on the program or to learn about eligibility requirements visit the Community Development Financial Institutions Fund website http://cdfifund.gov/.

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