Community Development Entities (CDEs) have been providing subsidy to real estate projects via the New Markets Tax Credit (NMTC) program since the program began about 10 years ago. That’s nothing new. What is new, however, is a shift whereby CDEs are increasingly interested in providing NMTC allocation to operating businesses, particularly if such financing will result in significant job creation. If your private equity group is acquiring, expanding, or investing in businesses that will create jobs in distressed areas, consider taking advantage of NMTCs. The majority of urban areas and many rural areas qualify as distressed under the NMTC program.
NMTCs: An Overview
In a nutshell, the NMTC program encourages taxpayers to make investments into low income communities by providing them with a tax credit for making those investments. The credit equals 39 percent of the investment, earned over seven years. For qualifying businesses, NMTCs can provide a permanent net subsidy of 15 to 20 percent of the amount financed. The best candidates are businesses that are:
- Located in or serve the residents of a distressed or low-income community
- Seeking financing of $5 million or more
- Creating a significant number of permanent jobs, particularly if such jobs will be available to low income individuals
- Making services or goods available to residents of a distressed community that aren’t currently available in the community
How to Access NMTC Capital
A private equity group that’s interested in taking advantage of the NMTC program would first need to determine if the operating business seeking the subsidy is eligible to benefit from NMTCs; it would then need to identify CDEs with an allocation of NMTCs that are willing to enhance the business’s financing with NMTCs.
Plante Moran can quickly determine if a business is eligible for NMTCs if you provide us with the location of the business. We can also help introduce you to CDEs that may be able to provide NMTC allocation to the business. Information regarding CDEs that have received NMTC allocations from the federal government is available at www.cdfifund.gov.
Whether your private equity group is interested in obtaining NMTC-enhanced financing to finance a particular operating business or if you would like to explore the idea of establishing your own captive CDE to apply for an allocation of NMTCs from the federal government, we can guide you through the process.