What is the New Markets Tax Credit?

The NMTC program allows individuals, businesses, and organizations to receive a tax credit by investing through qualified institutions—such as Truist—that are designated as Community Development Entities (CDEs). Truist Community Development Enterprises, a subsidiary of Truist Financial Corporation, has received NMTC allocations 12 times.^{Disclosure 1}

CDEs can then loan funds to local businesses for projects that improve housing, healthcare, economic opportunities, or other projects in distressed communities.

In other words, an investor buys the tax credits via the NMTC investment, and business owners gain access to loans through that investment—the NMTC program serves as a connector between the two.

By making a qualified equity investment, investors realize a 39% tax credit over seven years.^{Disclosure 2} Those receiving loans from the NMTC program can expect to offset total project cost by between 15% and 25%— that offset then functions as a subsidy.^{Disclosure 3} For businesses borrowing from an NMTC-backed fund, this reduction could well offset the down payment required for a commercial loan.

How do business owners benefit from the program?

Qualified business owners can borrow NMTC-backed funds for new construction, expansion, renovations, and equipment buys. Advantages include:

• Loans are interest-only and subsidized.
• After a seven-year compliance period, business owners may qualify for total forgiveness of the principal.
• The loans can be used across a wide range of sectors, including housing, healthcare, manufacturing, retail, education, and energy.
• NMTC loans are flexible—they can be layered with other types of financing, such as traditional loans or grants.

Qualified projects must be located in a low-income community—that is, where the poverty rate is 20% or higher or the median income is less than 80% of an area’s median income.

Business owners cannot apply directly to the NMTC program. However, partnering with an established, qualified institution with years of NMTC expertise and experience can be a vital step to accessing financing.

Most CDEs will ask businesses to provide a project plan with timelines and expected expansion or construction descriptions, as well as financial statements and data about how the project will positively affect the underserved community.

Once an NMTC deal is finalized, financing is typically based on a leverage model that combines equity from investors with other loan sources. This model minimizes the business owner’s out-of-pocket cost while providing a full tax benefit to the investors. Due to the complexity of NMTC regulations, it can be helpful to work with a trusted partner to maintain strict compliance over the seven-year period as well.

Because NMTC funding is competitive and complex, business owners benefit from working with an experienced Community Development Entity.

Truist is active in the NMTC program, having partnered with Food City, Grady Health System, Boys & Girls Clubs of Lanier, Columbus Tech, and many other organizations,^{Disclosure 4, Disclosure 5} and has been entrusted with more than $750 million in allocation authority.^{Disclosure 1}

Truist can coordinate with external partners, such as financing and legal teams, and leverage internal experts on the NMTC program, not-for-profit banking, and government banking to help business owners navigate the NMTC experience.