Assume that the Borrower has as gap in financing in the amount of $2,880,000 but only has $7,192,000 of Prior Qualifying Expenditures or other sources of capital (similar to Example 1).
Although the Borrower is able qualify for a NMTC Allocation of $10,000,000 (taking into account the $400,000 Sub-Allocation Fee, which is paid out of the proceeds of the NMTC Purchase Price provided by the Tax Credit Purchaser), the Borrower would still have a short fall of $480,000 (which is the difference between: (x) $2,880,000 shortfall, less (y) $2,408,000 (which can be funded with its $7,192,000 of Prior Qualifying Expenditures and other sources of capital, as in Example 1).
If the Borrower is able to secure an additional $359,600 of other financing (whether owner equity, debt or grants), it will then be able to secure a $10,500,000 Sub-Allocation.
The NMTC Purchase Price would be $2,948,400 (which is the product of (x) the $0.72 NMTC Purchase Price, times (y) 39% NMTCs, times (z) $10,500,000 Sub-Allocation).
The NMTC Financing would include:
- Forgiven Loan: $2,528,400 (which is the difference between: (x) $2,948,400 NMTC Purchase Price, less (y) $420,000 Sub-Allocation Fee (which is 4.0% of the $10,500,000 Sub-Allocation).
- First Senior Loan: $7,192,000 (which is similar to Example 1).
- Second Senior Loan: $359,600 (which is the difference among: (w) $10,500,000 Sub-Allocation, less (x) $2,528,000 Forgiven Loan, less (y) $1,192,000 First Senior Loan), less (z) $420,000 Sub-Allocation Fee).
Therefore, for every $1.00 shortfall that the Borrower is able to provide (whether Prior Qualifying Expenditures and other sources of capital, it will be able to obtain a $0.335 Forgiven Loan (which is the sum of (x) $2,528,400 Forgive Loan, divided by (y) the sum of: (i) $7,192,000 (similar to Example 1), plus (ii) $359,600 (additional sources of capital).
This example does not include legal, accounting, placement and other typical fees of a NMTC Financing.