“Bringing New Markets Tax Credits to the Non-Profit Community”

NMTC Frequently asked questions

New Markets Tax Credit transactions are relatively complicated, and we anticipate that you will have a variety of questions when you first start investigating this valuable source of funding. Below are some very good questions that come up time and time again, as we meet with non-profit social service providers looking into NMTC financing. Please click on a question to view the answer directly, or scroll through the text below to read all questions and answers. Click on a question to view the answer.

  • Why would a business or agency want to do a NMTC transaction?

    Generally speaking businesses view the tax credit as a source of capital — either realized through utilization of the credit to offset future tax obligations or as an immediate cash infusion through the sale of the tax credit to an investor who can use the credit. Not-for-profit organizations realize the benefit of the credit by effectively selling the credit to an investor through a leveraged financial model – typically a banking institution. Not-for-profit organizations realistically can assume that 15-18% of the project’s cost can be offset by the benefit of the NMTC program.

  • What kind of projects qualify for a NMTC?

    The regulations are very broad as to what type of projects would qualify. For example the projects can be such things as a human services organization, or a business such as a shopping center, hotel, manufacturing facility, office space, a school, childcare facility, health care facility, etc, etc. It helps to keep in mind that the basic concept of the NMTC program is to encourage developers to build infrastructure in low income communities.

    There are a few businesses that do not qualify: golf courses, country clubs, massage parlors, hot tub or sun tanning facilities, race tracks or other gambling facilities, or any store whose principle purpose is the sale of alcoholic beverages for consumption off premises.

  • How does a project qualify for a NMTC transaction?

    To qualify for a NMTC, a project or not-for-profit agency must be (a) operated in a low income community (LIC), or (b) it must qualify with respect to a targeted population.

  • Why would an agency use a consultant to complete an NMTC transaction?

    A NMTC transaction is extremely complex - in terms of navigating the process of getting ready for a transaction, obtaining an allocation and managing the actual legal, banking and accounting aspects of completing a transaction. Also, the process of obtaining an allocation and finding investors is extremely competitive and requires special knowledge, contacts and skills that a consultant will provide. In addition, a consultant will generally maximize the financial benefit of a transaction.

    Completing a transaction can also be extremely time-consuming to an agency's executive management and board of directors — and a consultant will minimize the time and energy spent in understanding and navigating a NMTC transaction. By using a consultant, the agency can attend to day-to-day operations, as well as focus on managing the capital campaign that is generally associated with a capital project.

  • hy would an agency use Community Funding Group to complete an NMTC transaction?

    Over the past 5 years CFG has built a significant knowledge base and network with the Client Testimonialinvestors, allocatees and legal and accounting firms that focus on NMTC transactions. CFG is particularly adept in working with not-for-profit executives and board of directors, enabling CFG to explain and guide them through a transaction from beginning to end — as well as providing follow-on services after a transaction is completed. Most importantly, CFG has been able to bring significant financial benefits — on average bringing cash equal to 18% of the cost of a capital project.

    CFG's management has significant background in obtaining financing and completing complex financial transactions for both corporations and not-for-profits — resulting in a track-record of having completed every NMTC transaction that it has started.

    CFG is proud of the services it provides and the results achieved. Please review what our clients have said about us. Click here to read some testimonials from some of our Clients.

  • What does CFG's "Preliminary Evaluation" entail?

    CFG's preliminary evaluation will consist of discussing with you the current project status and as well as discussing the qualification of the project as a candidate for a NMTC transaction. After our preliminary discussions, we will be able to give you an estimate of the economic benefit of a transaction, as well as an identification of the steps involved in undertaking and completing a transaction. The preliminary evaluation will also discuss such things as a timeline, necessary board actions, syndication of debt and equity with the banks, potential allocatees and investors. It is important that we also discus the community impact of the project. The information for a preliminary evaluation can usually be obtained through a 1 to 2 hour meeting with several management team members of the agency. Subsequent to the initial meeting, we can usually get back to you with meaningful feedback within several days.

    As part of CFg's commitment to the nonprofit community, this preliminary evaluation is done on a pro-bono basis for your agency.

  • What is the definition of a low income community (LIC)?

    A LIC is a United States census tract in which at least 20% of its population is at the poverty level or the area medium income is no more than 80% of the greater of the statewide or metropolitan area medium income.

  • What must a business or agency do to be considered operating in a low income community?

    To be considered operating in a LIC the business generally must meet 3 tests:

    1. 50% of the gross income must be derived from the LIC, and
    2. At least 40% of the tangible assets must be located in the LIC, and
    3. At least 40% of the services performed by its employees must be performed in the LIC.

  • How does a business qualify with respect to a targeted population?

    In order to qualify with respect to a targeted population, one of the following tests must be met:

    1. At least 50% of gross income must be from low income persons — which are defined as individuals whose family income is not more than 80% of the area medium family income.
    2. At least 40% of the employees must be low income persons.
    3. At least 50% of the business must be owned by low income individuals

    What is an Allocatee?

    An allocatee is an organization that has been certified by the US Treasury Department as a CDE (Community Development Entry) and that has applied for and received the right to provide NMTC allocations to specific development projects.

  • How does a business obtain an allocation for its project?

    The business must apply to a CDE that has an allocation. The process for being granted an allocation from a CDE is extremely competitive in that the cumulative demand for individual project allocations far exceeds the total amount of allocations available. Generally speaking, the main criteria for obtaining an allocation are: How ready a project is to start construction, and what the community impact of the project is.

  • From an Allocatee’s perspective what does a business need to do in order to obtain an allocation?

    The business will need to discuss its business plan and provide community impact information that will interest the allocatee in the project, as well as provide the information the allocatee requires to evaluate the financial and operational aspects of the project.

    An allocatee will ask some of the following key questions:

    • Is there a persuasive case relative to the community impact the project will be having?
    • Is the project “Ready to go”? This is the all-encompassing question that asks:
      1. Is there a completed design?
      2. Is there a reliable construction estimate?
      3. Is the necessary financing structure in place?
      4. Is there board approval for the project?
      5. Can the project be completed within 12 months of closing on the financing and NMTC transaction?
      6. Etc., etc., etc.

  • Is there a typical size project for a NMTC transaction?

    Given the transaction costs for completing a NMTC transaction, it appears that projects may need to be a minimum of $6.5 million – although projects more typically range in the $10-20 million range – with some being significantly higher. If deciding if a project would qualify relative to size, it is best to seek the advice of a NMTC professional.

  • How long does it take to complete a NMTC project?

    Generally speaking, from the time an allocatee commits to providing the allocation, the legal, banking and accounting process to complete the documents can take approximately 8-10 weeks. In addition, backing up from the commitment date of the allocatee, it can very well take 5-7 months to get a project ready for applying to the allocatee for an allocation. However, due to the complexity of the transactions and the specific circumstances of each individual project, it would be best to seek the advice of a NMTC professional.

    Because of complexity of putting together a NMTC transaction, it is advisable to start considering a transaction and engaging the appropriate advice and guidance nine months before the project’s construction is expected to start.

  • What are Community Funding Group's fees?

    Having us discuss your project, and provide a preliminary estimate of the financial benefit, as well as meet with and explain to your executives and board the details of the New Markets Tax Credit program, is done on a pro bono basis.

    Based on the preliminary review, should the agency decide to explore a NMTC transaction further, a $15,000 earnest fee is required. This is required so the agency has skin in the game, and is serious about attracting CDEs and Investors to its project.

    CFG's consulting fees are based on successfully completing a NMTC transaction — payable only upon closing a transaction. The fee is equal to .85% of the qualified investment — for instance, assuming a qualified investment of $10 million, the fee would be $85,000. The fees are structured so that they are paid within the transaction and are not charged to the agency's operating budget.

  • Where can I get additional information?

  • I have a project I'd like to tell CFG about. Where do I start?

    A good place to start is to have a look at our Project Evaluation Form. It has basic questions about your project which helps CFG evaluate the eligibility of, and possible benefit to, your project.
    It is a Microsoft Word Document, and can be downloaded here. A Word 2007 version is also available.
    Just fill it out and email it to info@communityfundinggroup.org.
    Of course, a phone call is always welcome as well.