The New Market Tax Credit: An Effective Source Of Equity For Black Business

Part One: The How, What and Where of the New Market Tax Credit Program

Equity capital can transform a business or provide the financial support needed to develop a real estate project. Low-cost equity capital is hard to come by, which is why the New Markets Tax Credit (NMTC) program was created. Since its creation in 2000, the NMTC program has deployed some $61 billion in tax credits to generate equity investments in urban and rural low-income communities. The investments are targeted to manufacturing businesses, new and improved healthcare facilities, daycare centers, community facilities, nonprofits and commercial real estate development.

In December 2020, Congress extended NMTC with $25 billion of new credits to be disbursed over the next 5 years. This $25 billion is intended to finance 690 business, 225 healthcare facilities, and 775 investments in community facilities. The following provides a brief description of the NMTC program, and projects that may benefit from credits.


Taken from the Community Development Financial Institution Fund’s “NMTC Program Award Book” (2019).

How the Program Works

The NMTC program is administered by the US Treasury Department through its Community Development Financial Institutions (CDFI) Fund. Generally, a Community Development Entity (CDE) submits an application to the CDFI Fund each year to be awarded an allocation of NMTCs. CDEs are typically your local community-based banks but also include corporations or partnerships who act as intermediary vehicles for the provisions of loans, investments or financial counseling. The process to obtain an allocation of NMTC is highly competitive, and typically occurs on an annual basis. A list of CDEs by jurisdiction may be found at

NMTCs themselves are actually claimed by investors who invest equity capital in qualifying projects through CDEs with available NMTC awards. The investor may provide up to 39% of the cost of the project. Investors make investments (typically with leveraged funds) in projects located in qualifying low-income census tracts (Qualified Active Low-Income Community Businesses, or QALICBs), which projects are selected by the CDE. The CDFI Fund website ( includes a mapping tool that indicates which census tracts qualify for this purpose.

Who Uses the Credits

A QALICB can be an operating business or a real estate project. Real estate projects must be physically located in a qualifying census tract. Determining whether an operating business is within a qualifying census tract is more complicated, and will be determined by (i) the location in which revenue is derived from the QALICB’s activity, (ii) the location of tangible property and (iii) the location of service performance by employees. There are additional ways to qualify if the business provides services for “targeted populations”.
In order to obtain NMTC financing, a project must locate a CDE (or multiple CDEs) with a NMTC award that is willing to commit to allowing an investor in the project to claim a portion of those NMTCs. There is high demand for NMTC financing so the process is very competitive. The better designed and thought through your project, the more likely success.

To obtain an allocation of NMTCs, CDEs promote investment in specified projects, e.g., health-related facilities, mixed-use facilities, community centers. These Investments in turn support job creation, improving access to healthcare, improving access to healthy foods, increasing environmental sustainability, better educational opportunities, and financing for business or projects overlooked by traditional financiers. Identifying a CDE with missions and goals in line with a particular project may improve the likelihood of receiving NMTC funding.

Available Credits through 2025

The $25 billion of NMTC allocations approved by Congress in December is the largest extension in the program’s history. Despite its size, this pending NMTC award will likely only make a small dent in the overall market demand of deserving projects seeking NMTC program funding. Indeed, many CDEs have already identified projects that they intend to fund when they receive an allocation of NMTCs in connection with the upcoming awards. Given the multi-year horizon of the NMTC program, however, it is not too soon for qualifying projects to begin strategizing to be successful in future NMTC program funding rounds. In Part Two on NMTC, we will provide a roadmap for businesses and developers who seek a successful path to obtaining equity financing through a NMTC.

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