Forgiven Loan Test

The NMTC Program subsidy provided to the Borrower in the form of a Forgiven Loan.

The Forgiven Loan net proceeds must generally be between approximately $1,200,000 and $2,500,000, which require that the Borrower has between approximately $6,000,000 and $12,500,000, respectively, of (a) Prior Qualifying Expenditures; (b) Borrower equity; (c) third-party debt; or (d) grants or other subsidies.

why-01a Why is there an approximately $1,200,000 NMTC industry minimum threshold?

Answer:

Transaction costs and the amount of time to close a NMTC financing starts to begin to offset the NMTC Program subsidy of the Forgiven Loan at this particular amount of NMTC financing.

NMTC transaction costs include:

the Allocatee’s “Sub-Allocation Fee” (which is generally approximately 4.0% of the “Sub-Allocation” to its CDE, which is facilitating the particular NMTC financing);
legal and accounting fees of the NMTC transaction participants; and
other typical fees and costs associated with any other comparable type of financing.

why-01a Why is there an approximately $2,500,000 limitation?

Answer:

This approximately limitation is based on (a) the difficulties in securing multiple Allocatees (which can be difficult to coordinate for a single closing), and (b) the community impacts typically do not support a higher amount. However, Borrower can apply for and obtain additional NMTC Financing after few years of the prior NMTC Financing provide that such financial can provide additional community impacts.

Sizing of New Markets Tax Credit Financing

The following examples provide various scenarios for which sizing of the NMTC financing is determined.

EXAMPLE #1:

Assume that the Borrower has as gap in financing in the amount of $2,408,000 million and has at least $7,192,000 of Prior Qualifying Expenditures or other sources of capital.

The Borrower is able qualify for a Sub-Allocation of $10,000,000 (taking into account the $400,000 Upfront Allocation Fee, which is paid out of the proceeds of the NMTC Purchase Price provided by the Tax Credit Purchaser).

The NMTC Purchase Price would be $2,808,000 (which is product of (x) $0.72 NMTC Purchase Price, times (y) 39% NMTC, times (2) $10,000,000 Sub-Allocation.

NMTCs, times (z) $10,000,000 Sub-Allocation

The NMTC Financing would include:

Forgiven Loan: $2,408,000 (which is difference between (x) $2,808,000 NMTC Purchase Price less (y) $400,000 Sub-Allocation Fee (which is 4.0% of the $10,000,000 Sub-Allocation).

Senior Loan: $7,192,000 (which is the amount of Prior Qualifying Expenditures and other capital and the debt service payments of which relate to the Prior Qualifying Expenditures are paid back to the Borrower).

Therefore, for every $1.00 shortfall that the Borrower is able to provided (whether Prior Qualifying Expenditures and other sources of capita)l, it will be able to obtain a $0.335 Forgiven Loan (which is difference between (x) $2,408,000 divided by (y) $7,192,000.

This example does not include legal, accounting, placement and other typical fees of a NMTC Financing.

EXAMPLE #2:

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 of (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 divided by the sum of (y); $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.

Although the typical NMTC Financing structure is quite complex based on all of the sources of funds, the fundamental economics and initial structure of any NMTC Financing is illustrated in the following link:

We are interested in participating as a NMTC Borrower

Although the typical NMTC Financing structure is quite complex based on all of the sources of funds, the fundamental economics and initial structure of NMTC Financing is illustrated in the following link:

Economics and Basic NMTC Financing Structure

For a discussion and illustration of how the Forgiven NMTC Loan is forgiven, please click on the following link:

Unwind after 7-Year NMTC Compliance Period

Please click the following link to watch our pre-recorded webinar:

NMTC Webinars and Educational Materials

To apply as a Borrower for NMTC Financing, please click the following link:

Apply for NMTC Financing

Contact

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P.O. Box 57600
Chicago, IL 60657-7366

Phone

312.881.0966

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