Economics and IRS Approved Leverage Structure
Economic Benefits of NMTC Financing
We identify, profile and solicit NMTC Investors (for best pricing and terms) based on current and projected demand for certain types of borrowers (whether for-profit or nonprofit), uses of NMTC financing (such as real estate, equipment or operations), types of communities that will benefit from the NMTC financing (such as urban or rural or characterized by certain distress criteria (such as higher unemployment rates or poverty rates), and location in the country (based on NMTC Investors’ service area or targeted so-called “underserved states”).
Sneak Preview of How Forgiven NMTC Loan Works
Steps to NMTC Financing: Forgiven NMTC Loan to a Single Borrower
Example of $10 Million NMTC Financing: Forgiven NMTC Loan to a Single Borrower
Steps in NMTC Financing: Non-Forgiven NMTC Loans and Multiple Borrowers
- They are willing to take on such risk because of the diversification of borrowers with smaller Non-Forgiven Loans rather than taking on the risk of a single borrower in a larger financing.
- Therefore, the NMTC Program subsidy is then generally in the form of a Non-Forgiven NMTC Loan in the amount between $500,000 and $5 million.
Example of $10 Million NMTC Financing: Non-Forgiven NMTC Loans to a Pool of Borrowers
- then the CDE uses the QEI proceeds to make (a) 2 “qualified low-income community” (“QLICIs”) in the form of the Senior NMTC Loan and the Forgiven NMTC Loan, or (b) QLICIs in the amount of the Non-Forgiven NMTC Loans to a pool of borrowers, which are
- “qualified low-income community businesses” (each, a “QALICB”), which
Leverage Loan Requirements
Generally, with respect to a NMTC financing involving the Forgiven NMTC Loan, identifying and securing sources of funds to be used as Leverage Loan(s) is the most challenging.
However, depending on the facts, this challenge can be alleviated by changes in the overall financing structure.
- work with the borrower’s potential sources of Leverage Loans to assist them in understanding the NMTC program and assessment of actual risk rather than perceived risk;
- identify and secure sources of these leverage funds particularly focusing on those with experience in NMTC financings; and
- determine whether the overall financing can be restructured based on all sources of financing in order to reduce risk or otherwise re-channel where the sources of financing are coming into the overall financing structure.
Creativity, Complexity and Opportunity of NMTC Financing
The vast majority of NMTC financings are facilitated using the IRS Approved Leverage Structure.
This structure is the basis on which to build the “capital stack” of the overall financing.
Often such financing includes multiple sources of financing, which can create complicated structures.
Although complicated, such structuring maximizes the economic benefit to the borrower based on all applicable underwriting, legal and tax requirements for each source of financing.
Our extensive experience in structuring these complex transactions permit us to be able to be quite creative in structuring each overall financing while still satisfying all legal, tax and underwriting requirements of all sources of financing.
The following flowchart illustrates multiple Allocatees, CDEs, Leverage Lenders, and other sources of financing, as well as organizational restructuring.
With respect to NMTC financing applications filed on behalf of our clients, we serve as a gateway of credibility because we sign off on all of the legal, underwriting, tax and structuring requirements as being completely satisfied based on our 25 years of finance, legal, accounting, tax, and community and economic development experience, as well as our relationships with the industry’s NMTC Investors, Allocatees and Leverage Lenders.
For a discussion and illustration of the unwind of NMTC financing after the 7-year NMTC compliance period, please click on the following link:
For a determination of whether the Forgiven NMTC Loan or the Non-Forgiven Loan is available to a borrower based on the “Forgiven NMTC Loan Test” and the sizing of the NMTC financing, please click on the following link.
Please click the following link to watch our pre-recorded webinar:
To apply as a borrower for NMTC financing, please click the following link: