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New Trends Emerging in New Market Tax Credit Program

By MarksNelson on October 6, 2017 in Articles, Michael Marsh CPA, Real Estate
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Two new trends are emerging in a program designed to breathe new life into severely distressed neighborhoods.  New Market Tax Credits are now being used for manufacturing investments above all else. A report out from the NMTC Coalition, found in 2016, manufacturing projects increased by 26.8% helping businesses expand, purchase cutting-edge equipment and secure capital. When the federal program began in 2000, most focused on retail and general commercial real estate. Over the last few years, the program began to shift.  Right now, the top four project areas are manufacturing followed by healthcare, education/youth, and mixed use.

However, another noteworthy trend is the increase in financing for business incubators and shared entrepreneurial space also known as “makerspaces”. In 2016, there were 11 NMTC projects and four more are in the pipeline for 2017.

The New Market Tax Credit program helps businesses access flexible and affordable financing. Terms can include lower interest rates, flexible provisions such as subordinated debt, lower origination fees, and debt coverage ratios, higher loan-to-values and longer maturity dates.

In some cases, NMTC is the only tool available to generate investments in neglected and underserved communities. To qualify, businesses must be in communities in distressed, or highly distressed areas.

Currently, the demand from CDEs for NMTC allocation is greater than the money available. According to the NMTC Coalition, throughout the history of the incentive program, the need for credits has exceeded the authorized amount by six to one. As a result, lawmakers, including Missouri Senator Roy Blunt (R-Mo) have introduced legislation to make the program permanent citing its success in creating jobs and improving communities.

The application process is extremely competitive. It’s important to consult a tax advisor who can help you navigate through the entire program. For more information on New Market Tax Credits, contact Mike Marsh at 816-743-7700.

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