If you’ve thought about applying for New Markets Tax Credits (NMTC) but didn’t because you thought that the funding was only for traditional community development businesses or projects, we’re here with some good news. NMTC projects can take many forms and show up in some surprising industries.
Even though NMTC funding is available, many business owners don’t know that their projects qualify. Let’s take a look at what NMTC credits are, where they’re being used, and how businesses can take advantage of the funding to support their goals.
What are New Markets Tax Credits?
The New Market Tax Credits program offers a federal tax incentive designed to encourage private investment in low-income communities. This program aims to bring jobs, services, and economic development to these areas through investments in community projects.
When investors participate in NMTCs, they’re eligible for a tax credit worth 39% of their investment over seven years. To qualify, investments must meet certain criteria and be used to fund projects like affordable housing, infrastructure projects, manufacturing plants, or small businesses in underserved areas.
Businesses and projects that qualify for NMTC investment can serve their communities in a variety of ways, including job creation, affordable housing development, infrastructure, access to utilities, and more. NMTCs encourage investors to support these projects that may otherwise be deemed risky or unprofitable.
Surprising industries taking advantage of NMTCs
NMTC funding can be seen across a wide range of industries and businesses that include health, manufacturing, education, and technology, but there are also industries using NMTCs that might surprise you. Here are three of them.
For-sale single family housing
NMTC credits are often associated with mixed-use projects or commercial industries, but the construction of for-sale single family housing is a good candidate for the program.
There’s a growing demand for affordable housing across the country, especially in low-income communities and census tracts. The development of single-family homes not only addresses the need for housing directly, but the construction of these homes creates construction jobs as well as ongoing maintenance jobs for local residents.
If you’re developing single-family homes for sale in low-income census tracts, you can map your projects against NMTC qualifying areas to see if you’re eligible.
Utilities and infrastructure
The creation of essential services that directly improve community quality of life meets NMTC criteria for funding, so utilities and infrastructure projects in underserved areas often quality. Examples include broadband expansion, cogeneration plants, and water treatment facilities.
NMTC funds can be used to purchase equipment, finance construction, and fund facility development. Not only does the completion of these projects have a positive impact on low-income communities, but the projects themselves offer significant job creation in construction and ongoing operations.
To determine if your project qualifies, you can check the project location’s CDFI Fund eligibility by using the mapping tool on their website.
Modular multi-family housing factories
Modular multi-family housing factories are addressing the need for affordable housing with factory-produced units. The construction of these units also creates skilled manufacturing jobs for local residents. An example of NMTC funding in modular multi-family housing is Grow America’s involvement in the Sola/Model Z project.
This minority-owned manufacturing/industrial project focuses on producing high-quality, affordable housing modular units. The units are produced in a factory and include the plumbing, electrical, finishes, and appliances. After construction, these units are moved to the development site and stacked to create a multi-family building that saves over 400,000 pounds of building materials and produces 40% less waste and carbon emissions than traditional construction.
If your modular housing factory serves affordable housing markets or employs workers from low-income communities, you likely qualify for NMTC funds that can cover new equipment, facility expansion, or production line improvements.
How to Get Started: Your 4-step action plan
According to the CDFI Fund’s NMTC Fact Sheet, between 94% and 95% of NMTC investments into businesses come with more favorable terms and conditions than are typically found in the market. To benefit from NMTC funds, you can start with this four-step action plan.
Step 1: Verify that you qualify for NMTC funds by using the Community Development Financial Institutions Fund’s (CDFIs) online mapping tool.
When you open the NMTC Public Viewer, you can search by address or zoom into your area and click on the census tract. Then you can verify the demographics and eligibility in the sidebar.
Step 2: Signup for a Grow America training course
Grow America training courses equip you with real-world knowledge to help you understand different aspects of economic development. These college-level learning opportunities dig deep into various concepts and their applications.
If you’re not ready to commit to an entire course, we also offer free webinars geared towards expanding your knowledge and staying current with industry trends.
Step 3: Find a Community Development Entity (CDE) partner with the NMTC “Allocatees States Served” database
The NMTC States Served database allows you to find organizations that have received awards from the NMTC program. Start by clicking on your state and then browsing the Awardees. Once you have access to this list, contact three to five local CDEs to ask about their NMTC program.
Doing this sooner rather than later may increase your chance of receiving funding because the CDE will have knowledge of your project and may include the details when they submit their own funding application to the CDFI Fund.
Step 4: Prepare your application
Preparing an application takes a significant amount of time, and it’s important to partner with a CDE early in the process. You can also work with an NMTC consultant who will draft marketing materials about the project and present that to multiple CDEs as well as guide you through the application process to secure the funding you need for your project.
Don’t miss out on NMTC funding
You may think that your project will qualify for NMTC funding, but there are several surprising industries that are using NMTCs to support their business. This funding allows businesses to create jobs in low-income census tracts, provide affordable housing, and support creation of infrastructure and utilities. These industries may not fit into the idea of traditional “community development” businesses, but they are helping to increase quality of life for those in these areas.
If you’re interested in exploring NMTC funding for yourself, start with the action steps above and sign up for one of Grow America’s courses to learn more.