Benefits of NMTC Financing Over Traditional Financing
The New Markets Tax Credit (NMTC) program offers financing for projects for which traditional financing often is not an option. Generally, NMTC financing offers more flexible and creative terms. In contrast, traditional financing is limited to strict parameters and structures that may not meet the needs of the investors in these projects.
Investors Benefit from Tax Credits Over Seven Years
The biggest benefit for investors in NMTC programs is that they can claim tax credits against their federal tax obligations. The investors’ allotted tax credits equal 39% of the NMTC project over seven years. Traditional investments in such projects do not allow investors to claim these tax credits.
NMTCs Result in Investments in Low-Income Communities
NMTCs only are available for investments in qualifying low-income communities. In many cases, lenders and investors are wary of investing in projects located in these communities due to the level of risk involved. However, the benefits of the NMTC program outweigh the risks for investors and lenders.
NMTC Loans Have More Flexible Terms
The tax credits available due to the NMTC program provide a subsidy that can significantly reduce the interest rate for business loans or increase the business owner’s equity in the project. NMTC loans to these qualifying businesses often have more flexible terms than conventional loans, including decreased origination fees, longer interest-only payment periods, increased loan-to-value (LTV) ratios, decreased debt coverage ratios (DCR), and lengthier amortization periods.
NMTCs Can Combine with Other Financing Sources
Unlike many types of traditional financing, NMTCs can combine with many other sources of financing to fill in financing gaps where needed. As a result, investors have successfully used NMTCs in addition to historic rehabilitation tax credits, state NMTCs, and USDA loan programs, among others, to finance projects.
NMTCs Can Benefit Lenders
Using NMTCs, lenders can earn rates at or near market rates. They also can participate in transactions that would be unfeasible without NMTCs. Furthermore, lenders can help meet their Community Reinvestment Act (CRA) requirements by investing in CDEs for the purposes of the NMTC program.
We Can Work Together to Develop Communities
Savage & Associates is an economic development law firm providing sophisticated legal and business advice to clients interested in making significant changes in their communities. We advise developers, investors, nonprofit organizations, entrepreneurs, and anyone looking to effectuate change.
Contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington, D.C., to discuss your ideas. You can also find Savage & Associates online 24 hours a day, seven days a week, to get more information about the innovative financial tools we can use to make your vision a reality. From New Markets Tax Credits to Historic Tax Credits, we can design the unique transaction best designed to achieve your objectives.