The New Markets Tax Credit (NMTC) program offers tax incentives to lenders to encourage loans for businesses located in low-income neighborhoods and creates tax credit equity for the business itself. Find out if your business qualifies.
The New Market Tax Credit
The New Markets Tax Credit (NMTC) program was implemented by President Bush's administration in 2000 as an incentive to create new interest in economic development for urban and rural low-income communities. Participating investors receive a 39% tax cut, making it an attractive equity investment opportunity.
How can a business benefit from using the New Market Tax Credit?
* The NMTC program helps businesses raise funding to start or expand the business before a return on the investment comes due and offers relief from cash flow issues in the short term.
* Project costs of 10% or more can be funded by tax credit equity recovered by selling tax credits. Generally, equity does not require pay back. For example, a project requiring financing of $10 million that receives $10 million in New Market allocation funds, nets an equity amount of $1 million. This leaves $9 million to be financed by traditional means.
* NMTC program loans can be arranged with banks at significantly lower interest, 1.5 to 2% below current market rates.
* Owning equity capital makes a business more creditworthy. This, in turn, often lowers the cost of traditional financing and gives the business better leverage for additional financing. Equity capital also provides a financial cushion for unpredictable eventualities.
Who Qualifies?
Almost any business located in a low-income area can qualify. Typical businesses include shopping centers, technology providers, manufacturers, and retail shops.
Businesses that do not qualify are residential properties where 80% or more of income is derived from rent, farms, and entertainment facilities like golf courses or country clubs, massage parlors, tanning places, gambling properties like casinos or dog tracks, liquor stores, and property rental sites.
Eligible projects:
* Must be located in a low-income area verified by census.
* Must be a commercial real estate development – not a home-based business.
* Must be single-site business, not a chain, with 50% or more of tangible assets located in the qualifying area.
* Must have all employees working on site at least 50% of the time.
How does this benefit the community?
Many of these projects are directly instrumental in the revitalization of areas in urban decay. New businesses create jobs and provide a boost to the local economy in terms of direct economic impact and rising property values. One such successful venture is the Attucks Theater located in the Church Street Corridor area in Norfolk Virginia. The old theater, built in 1919 and closed in the early 50s, was falling apart, much like the neghborhood around it. The entire area was crime-ridden and dangerous. Robert K. Jenkins Jr., formerly a lawyer for the SEC, saw the opportunity and took advantage of the NMTC program to rebuild the old theater into a showcase. In the process, other investors and businesses came on board, and today a thriving, robust community filled with teachers and doctors and lawyers stands in the same area that prostitutes and drug dealers once called home turf.