In 1993, at the First Annual Greenlining Institute Conference on Community Development, we suggested the creation of government backed venture capital funds to take first risk position in the provision of equity capital to small, minority businesses on Georgia Avenue in NW Washington, DC. This morphed into the New Markets Tax Credit program, and became a real estate development program that, without our participation or blessing, has fueled gentrification.
As promoted by the people who developed the program in the Clinton Administration, the New Markets Tax Credit (NMTC) program "was designed to increase the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors." The United States Government Accountability Office (GAO) states that "The NMTC provides investors (financial institutions, individuals, corporations, etc.) with a tax credit for investing in a Community Development Entity (CDE) that, in turn, reinvests the funds in qualified low-income communities. CDEs are domestic partnerships or corporations with a primary mission of serving or providing investment capital for low-income communities or low-income persons."
Over the last 20 years, the NMTC has been claimed to be an effective, targeted and cost-efficient financing tool valued by businesses, communities and investors across the country." For low income, Black and minority communities, it has not worked. In an effort to help improve the program, we testified before the House Ways and Means Select Revenue Measures Subcommittee at a joint hearing with the Subcommittee on Domestic Monetary Policy and Technology of the Financial Services Committee concerning ways to improve the New Markets Tax Credit Program. See: https://financialservices.house.gov/media/file/hearings/111/printed%20hearings/111-47.pdf
While the NTMC Program is set to expire at the end of 2025, it will probably be extended as it was at the end of 2020.
Basics - According to the US Treasury, "Historically, low-income communities experience a lack of investment, as evidenced by vacant commercial properties, outdated manufacturing facilities, and inadequate access to education and healthcare service providers. The New Market Tax Credit Program (NMTC Program) aims to break this cycle of disinvestment by attracting the private investment necessary to reinvigorate struggling local economies.
"The NMTC Program attracts a limited set of private capital investors into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities (CDEs). The credit totals 39% of the original investment amount and is claimed over a period of seven years." This has facilitated an increase in gentrification. Still, if you are seeking capital, you should be aware of this program.
NMTC capital is hard money to get, especially for women and minority firms. The perceived benefits may not be as large or impactful, either. In addition, the social and moral stance of most venture capital firm is suspect. And, they are greedy. Very Greedy. The added pressure on company investees to meet return targets may drive certain mangers to cut corners (see: Enron). Still, for certain firms, venture capital funding represents the ultimate solution to the fundraising dilemma.
Request a CallThe NMTC Program is an indirect community development lending program: as a Black or minority firm, you have to go thru a number of entities to obtain money. It is a long process. But, for startups and new businesses with a lot of growth potential, the program might provide the resources you need to grow quickly. There are a number of qualifications, however. If you have "a new business idea located in an eligible area, with a ready-made and eager market to buy it, but don’t have is the money necessary to develop that idea into a product you can sell to that market, at least not before competitors can, NMTC funding might allow you to quickly create and expand the business, gaining market share and brand recognition before competitors can beat you to the sale."
The NMTC Program requires that borrowers repay funding within seven (7) years. Another issue relates to the size of the loan you need. NMTC CDEs and CDFIs prefer large loans, another reason real estate is preferrred. Most NMTC investments start with the submission of some form of business plan or deck. This document outlines the opportunity and the market. It may contain a review of the existing and expected competition and provide detailed financial projections. You will certainly need to provide details on the management of the company.
To make the best use of this resource, we suggest you research specific CDFIs and CDEs (see our list) to find out exactly what they look for when it comes to eligibility.
Venture capital firms look for potential investment that will generate MILLIONS in annual revenue.
Many say that "the most important condition is that you develop a winning business plan" to get funding. We disagree. Based on statistics, the most important characteristic is that you be young, male and white with a real estate project. Period.
As one website noted, "most venture capital firms want to see proprietary intellectual property, a large market size, management team members with expertise and experience, and a current valuation that allows for a good return on investment" and that you be young, male and white.
The following documents may be required:
Many CDFIs and CDEs have no fees.
Other Fees include Late Payment Fees, Closing Fees, taxes.
Apply For LoanMinority Small Business NMTC Options.
CDFIs and CDEs have not shown any real, impactful skill in serving women or minority firms. In our financing guide, we list these CDFIS and CDEs. While we think this is a good option, remember - the problem is with the conventional financial instiutution model itself, not with the color or gender of the people who populate the firms. You're still not going to be able to get money from these firms unless you fit the lending/investing sector AND demographic they prefer.
CDFIs and CDEs targeting women and minority firms tend to be geographically focused, like most online lenders. You must conduct a comprehensive review of CDFIs and CDEs to determine if any work with women and minority businesses. If you need help, contact us.
The NMTC Program, CDFIs and CDEs represent an option for women and minority firms, but a not so good one. It's not all there fault: "From 2005 through 2008, minority-owned CDEs were successful with about 9 percent of the NMTC applications that they submitted to the CDFI Fund and received about $354 million of the $8.7 billion for which they applied, or about 4 percent. By comparison, non-minority CDEs were successful with about 27 percent of their applications and received $13.2 billion of the $89.7 billion for which they applied, or about 15 percent." Post George Floyd, the numbers got significantly better, for a little while.
The US Treasury Department via the CDFI Program. CDFI FUND HELP DESK. For all program questions and general inquiries. Phone: (202) 653-0421. Email: cdfihelp@cdfi.treas.gov.
According to the GAO,"Congress established the New Markets Tax Credit (NMTC) program as part of the Community Renewal Tax Relief Act of 2000 to encourage investors to make investments in low-income communities that traditionally lack access to capital. The NMTC program is administered by the Community Development Financial Institutions (CDFI) Fund in the Department of the Treasury which allocates tax credit authority-the amount of investment for which investors can claim a tax credit-to CDEs that apply for and obtain allocations."
Other regulators that may be relevant include the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Offoce of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB) and the US Securities and Exchange Commission (SEC).
We have included some forms and templates you might find helpful in your search for capital.
These sample funding documents are educational in nature. You will still need to review all documents with your team and with a lawyer.
Prepare carefully. Fulfill your dreams to lead the life you want, the way you want with a business or personal loan! Download loan forms and information now!
Get help easily - just fill the below form and we will contact you in 24 hours.
