NMTC
New Markets Tax Credit Program
New Markets Tax Credit Program
What It Is
The New Markets Tax Credit (NMTC) program was enacted in December 2000 by the U.S. Treasury Department as part of the Community Renewal Tax Relief Act. The initial purpose of the NMTC program was to spur private investment in businesses operating in low-income communities. As the NMTC program developed, Self-Help successfully advocated for the program to include nonprofits.
Under this program the federal government allocates tax credits to “Community Development Entities,” such as for-profit banks and nonprofit lenders like Self-Help. By offering the tax credits to private investors, these entities raise funds that they then turn into financing for businesses and nonprofits in low-income communities.
The federal government has made over $8 billion in allocations, $170 million of which was awarded to Self-Help in two rounds of allocations. Our second allocation of $95 million was the second largest award in that round – a show of confidence in Self-Help’s track record and intended plans for the funds.
Eligible Projects
Self-Help uses its NMTC funds to help borrowers finance the purchase, construction, and renovation of real property. Past borrowers have included charter schools, commercial real estate developers, child care providers, churches and other nonprofits.
We can help you determine if your project is located in an eligible census tract and meets the program’s qualifications.
Benefits
The federal subsidy gets passed down to qualifying projects in the form of below-market interest rates and more flexible loan terms like longer amortizations and higher loan-to-value ratios. This screening should be used as an initial guide of eligibility; Self-Help can confirm whether the address is offiicially eligible through the NMTC program's system.
Requirements
Projects must be located in a low-income census tract, defined for the purposes of this program as having either: (a) a poverty rate of at least 20% or (b) a median income no more than 80% of area median income.
Various uses of property are allowed, including office, retail, education, health care, industrial, and hotel. Additionally, rental residential is permitted so long as no more than 80% of gross property revenue comes from residential units. For example, a mixed-use office / retail / apartment project may be eligible.
The borrowing entity for a project must also meet certain asset and revenue tests. For nonprofits such as charter schools, these tests are easily met. For commercial real estate projects, often a single purpose entity is created to own the property and be the borrower. A Self-Help loan officer will work through these issues with prospective applicants.
Additionally, certain “sin” businesses are prohibited from being tenants in properties financed with the New Markets Tax Credit program. Examples include massage parlors, hot tub facilities, tanning salons or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
NMTC Resources
To learn more about the NMTC program and its potential to help your organization, please contact our New Markets Tax Credit team or visit the New Markets Tax Credit Coalition.
To screen a property address for eligibility, visit the Federal Financial Institutions Examination Council's Geocoding/Mapping System. Enter your organization's address and click through the relevant buttons to find the percent below the Poverty Late (should be 20% or greater) and the tract median family income % (should be 80% or less).
