The General Characteristics Of A Highly Ranked NMTC Application – Part Two

The General Characteristics Of A Highly Ranked NMTC Application – Part Two

Part One of this blog discussed the New Markets Tax Credits (NMTC) Application Process. There are two phases to the NMTC Application process. Unfortunately, not all applications make it to the second phase. Our goal is to provide you with helpful tips to improve your NMTC application. An application must demonstrate a business strategy possessing certain characteristics when it is evaluated in Phase One to ensure that it receives a high enough score to qualify for continued evaluation in Phase Two. Today, we will discuss the characteristics that may enhance your NMTC application’s business strategy and hopefully merit an NMTC allocation.

There were 208 Allocation Applications made by various Community Development Entities (CDEs) throughout the country. The Community Development Financial Institutions Fund (CDFI Fund) received requests for $15.1 billion in NMTC allocations. One hundred CDEs, or 48.1% of the applicant pool, received allocation awards totaling $5 billion, which constituted approximately 33.1% of the total amount requested by applicants.

As would be expected, the financial health of the Applicant is of paramount importance. Factors such as the fee structure and the overall financial stability of the Applicant’s business entity are also characteristics of a potentially highly qualified application.

A good application will indicate:

  1.  The Applicant possesses a track record of raising Qualified Equity Investments (QEIs).
  2.  The Applicant’s past NMTC activities with prior Allocation Applications.
  3. The Applicant’s proposed commitments to provide Qualified Low-Income Community Investments (QLICIs) in Non-Metropolitan Counties.
  4. The Applicant’s  propensity to engage in innovative investments.

Applications are scored on a point system. An NMTC application will receive up to five additional points for demonstrating consistent service to disadvantaged businesses or communities. An application will also receive up to five additional points for committing to invest substantially all proceeds from QEIs. Applications that fail to achieve certain minimum scores in the Business Strategy section and Community Outcomes section of the application will receive no further consideration and will be deemed not to be highly qualified NMTC applications.

Because the Panel reviews information related to prior allocations in Phase Two, it is important to be prepared to explain any discrepancies that may cause questions or unfavorable conclusions related to former awards. It is also important to be prepared to provide any supplemental information requested by the CDFI Fund during the Phase One review process.

A highly ranked application will demonstrate that the Applicant has a high capacity to deploy and monitor NMTC investments. It will show a history of the Applicant’s business providing direct loans or equity investments. An exemplary application will exhibit the important relationships and consequential benefits for a Qualified Active Low-Income Community Business (QALICB). It will clearly show a healthy distribution of benefits among the investor, CDEs, and QALICBs.

A qualified application will prove that clear and meaningful community outcomes are likely to occur and benefit low-income persons or residents of low-income communities. And, that the Applicant’s investment decisions meet the needs of the communities they support and the economic development priorities of low-income communities they serve.

Further, a successful Applicant will unequivocally demonstrate that its products will be significantly more flexible than market standards. For each product, the Applicant will clearly describe the circumstances under which and how frequently the best rates and terms would be available and provide examples and comparisons to what is typically offered by the Applicant and offered by other financial institutions or investors in the Applicant’s service area. The Applicant will provide an example of how each proposed product will be used to finance a proposed  NMTC investment.

For most Applicants, the application will indicate debt with interest rates of at least 50% below-market; or debt that otherwise satisfies the relevant requirements. Applicants investing in other CDEs will demonstrate a high likelihood that they will pass favorable rates and terms along to the borrowers.

The Applicant should demonstrate that it possesses the ability to begin making NMTC investments promptly. A highly qualified application will demonstrate the Applicant’s ability to deploy QLICIs commensurate with the allocation request.

If the application proposes to fund a single or small number of projects, the Applicant must demonstrate a high likelihood that its proposed projects are feasible based on the ability to secure financing, that they will close as planned, that the risks to timely closing are limited, and clearly identified. The application should present this information in tandem with a superior risk mitigation plan.

Finally, related to demonstrating an effective business strategy, a highly qualified application will demonstrate, during each of the past five years, an excellent track record of directly providing products and services similar to those it would provide with the QEI proceeds. An application with a relatively limited record of providing QLICI-type activities could also achieve a high score if it has a very strong five-year or longer track record of non-QLICI like investments that are distinctly aligned with its current business strategy.

Let’s Work Together to Develop our Communities If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to evaluate the benefits provided by the New Market Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits programs, and other vital economic development tools that benefit low-income communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.

The General Characteristics Of A Highly Ranked NMTC Application – Part One

The General Characteristics Of A Highly Ranked NMTC Application – Part One

Applying for New Markets Tax Credits (NMTC) allocation is complicated. At Savage & Associates, we strive to support this process for our clients. We can help you realize your dreams to help your local communities. The best way to accomplish this is to ensure that you submit a thorough NMTC  application. This first blog on this topic discusses the application process and several characteristics of a highly ranked NMTC application.

The Community Development Financial Institutions Fund (CDFI Fund) received 208 Allocation Applications from Community Development Entities (CDEs), requesting a total of just over $15 billion in allocations. The CDFI Fund made allocation awards totaling $5 billion, or about 33.1% of the total amount requested by applicants, to 100 CDEs which was almost half (48%) of the total applicant pool.

The Application Process – Phase One

There are two phases to the review of an NMTC application. Applicants receive points for demonstrating certain attributes. In Phase One, two reviewers independently evaluate and score the Business Strategy and Community Outcomes sections of the application.

An Applicant will receive additional points for demonstrating a track record of serving disadvantaged businesses or communities and committing to invest substantially all proceeds from Qualified Equity Investments (QEIs) in unrelated entities.

For an Applicant to receive further consideration in Phase Two of the application process, an application must achieve certain minimum scores in the Business Strategy section and Community Outcomes section of the NMTC application. Failure to receive the minimum score in each section will cause the application to be considered not highly qualified. Therefore, it will receive no further consideration.

At the end of Phase One, all applications that achieve minimum scores in the Business Strategy section and Community Outcomes section of the NMTC application and are considered highly qualified will be sent to the Panel for further review in Phase Two.

The Application Process – Phase Two

The Panel will also review information related to prior allocations, including the CDFI Fund’s Awards Management Information System. This data may also include audited financial statements and other supplemental information requested by the CDFI Fund.

In determining allocation award recommendations, Panelists in Phase Two consider the following list which is not all-inclusive:

  • *Any issues noted by the Phase 1 reviewers.
  • *The Applicant’s capacity to deploy and monitor NMTC investments.
  • *The Applicant’s record of providing direct loans and/or equity investments.
  • *The existence of notable relationships and their benefits (cost savings, lower fees) for Qualified Active Low-Income Community Business (QALICB) or unaffiliated end-users.
  • *Whether clear and meaningful community outcomes are likely to occur and benefit Low-Income Persons and/or residents of Low-Income Communities, based on the Applicant’s pipeline projects, including the Applicant’s ability to track community outcomes.
  • *The Applicant’s investment decisions aligning with community priorities.
  • *The financial health and feecompensation structure of the Applicant.
  • *The distribution of benefits among the investor, CDEs, and QALICBs.
  • *The Applicant’s track record of raising QEIs. Panelists also considered the consistency of the Applicant’s past NMTC activities with prior Allocation Applications, if applicable, as well as the Applicant’s proposed commitments to provide Qualified Low-Income Community Investments (QLICIs) in Non-Metropolitan Counties and engage in innovative investments.

The CDFI Fund also reviews compliance, due diligence, eligibility, and regulatory matters including:

  • *Whether an Applicant or its affiliates were previously awarded funds through other CDFI Fund programs and maintained compliance with the  award agreement.
  • *Whether prior-year Allocatees successfully issued the minimum requisite QEIs and made the minimum requisite QLICIs from prior NMTC Allocations as specified in the Notice of Allocation Availability (NOAA).
  • *Whether prior-year Allocatees were compliant with the requirements of past Allocation Agreements.
  • *For regulated financial institutions, information from the Applicant’s primary federal regulator. 
  • *Information related to the Assurances and Certifications section of the application.

Next, as provided for in the NOAA, the NMTC Program staff reviews the initial allocation determinations to ensure that:

(i) the proportion of Allocatees that are Rural Community Development Entities (Rural CDEs) was, at a minimum, equal to the proportion of highly qualified Applicants that were Rural CDEs; and

(ii) at least 20% of all QLICIs made by Allocatees under the 2020 allocation round would be invested in Non-Metropolitan Counties, based upon commitments made in their applications.

In our next blog, Part Two, we will examine the business strategy characteristics of a highly qualified NMTC application.

Let’s Work Together to Develop our Communities

If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to gain access to the benefits provided by the New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools that benefit local communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.