FAQs - Rural Development Partners | Community Development

FAQs

What are NMTCs and how can they benefit my business?

The federal New Markets Tax Credit is a 39% federal income tax credit earned by investing in qualified businesses that are located in certain low-income census tracts. Investors are typically large corporate or institutional investors that can directly utilize the tax credit and are not subject to the Alternative Minimum Tax, the latter being a factor which discourages individuals from becoming NMTC investors. If you have a qualified business in a low-income community, you may be able to secure debt or equity financing for a new or expansion project on very attractive terms by utilizing the NMTC program. Projects need to be economically sound to attract a tax credit investor. Terms vary but often involve a low interest rate loan with no principal payments until a year 7 balloon payment.

How do I obtain NMTCs?

Allocations of New Markets Tax Credits can only be obtained from the federal government by a certified CDE and then only through a competitive application process. You may create your own CDE, seek certification from the CDFI Fund and then apply for an allocation of tax credits. This process could easily take a year or more, and there would be no guarantee that your application for NMTCs would be approved. More likely, you will want to work with an existing CDE that has already been awarded an allocation of NMTCs that it can then sub-allocate to your project. Visit www.cdfifund.gov to obtain the latest list of CDEs with an allocation of NMTCs.

RDP has been awarded $244.7 million in NMTC allocations since 2004. Please contact us to find out if we have any remaining allocations that could be sub-allocated to your project.

Is my business eligible for NMTCs?

The NMTC program has established a number of eligibility requirements for businesses, which can be found on this CDFI presentation or at www.cdfifund.gov. Fortunately, most active agribusiness or forestry operations, excluding production agriculture, will qualify as long as the majority of its operations (or at least the portion being financed with NMTCs) is located in an eligible low-income census tract. Eligible census tracts generally include (a) census tracts with a median family income less than 80% of the state median family income, or (b) census tracts with less than 85% of the state median family income if the county has experienced greater than 10% out-migration between 1980 and 2000.

For a listing of eligible census tracts, go to the CDFI Fund web site, select the Site Index, then select the NMTC Program, then scroll down to "Targeted Populations and Communities."

RDP and most other CDEs have agreed to serve only the most economically distressed low-income communities.

Contact RDP for help in making an eligibility determination.

Is RDP or another CDE interested in providing NMTCs for my business?

When a CDE obtains an allocation of NMTCs, it enters an agreement with the CDFI Fund imposing specific requirement upon the CDE such as (a) the geographic area it can serve, (b) the type of investments it can make, (c) the degree to which it will serve rural vs. urban areas, and (d) the degree to which it will target only the most distressed low-income communities. RDP has a 50-state service area, provides business financing only (specifically agribusiness, forestry and renewable energy), serves rural areas almost exclusively, and targets only the most economically distressed low-income communities. In addition, RDP has established other requirements to ensure that it satisfies its commitments to the CDFI Fund and to make the most efficient and effective use of its NMTC allocations. You will need to contact other CDEs to determine their specific restrictions and requirements.

Below is a list of RDP's main eligibility requirements. We will be happy to offer guidance in meeting these requirements as well as assist you in understanding the NMTC program and the potential benefit for your business. However, RDP cannot consider committing any of its NMTC allocation to your business, unless the business...

  • Adds value to or increases marketing opportunities for agricultural, forestry and renewable energy projects;
  • Is located in a rural area or a minor urban area (population < 1 million) (note: only a small portion of RDP's NMTC allocation may be used in a minor urban area);
  •  Is located in a low-income census tract which meets criterion 1, 2 or 3 on the Distressed Criteria List, or any two of criterion 4 - 17;
  • Is planning an NMTC transaction size of at least $5 million;
  • Has a directive from its senior management to pursue an NMTC transaction;
  • Has identified an investor and/or lender willing to finance your business using the NMTC program; and
  • Agrees to retain legal and accounting counsel with NMTC transaction experience

 

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