|
Guaranteed Lending |
The New Markets Tax Credit (NMTC) is one of the largest economic development incentives ever enacted. The program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period. These federal tax credits create a unique equity funding mechanism for business located in areas that qualify for the program. The NMTC Program is administered by the Community Development Financial Institutions Fund, which is an agency under the United States Treasury Department. State Incentives Over the past decade economic development incentive packages have emerged as an effective method of helping attract and expand businesses, and in creating new jobs. Although each state may apply the economic development principles somewhat differently, the underlying strategies are usually very similar. The formula typically is to use state dollars in the form of tax credits, tax abatements, and cash rewards for business activity that creates economic gain for the state, which should result in higher levels of taxes that repay the state for their investment in these businesses. Additionally, there is a growing trend of creating public/private partnerships with consultants to provide strategy and counsel to these companies so as to enhance the enactment of the program as well as the effectiveness of the company’s performance. WayPoint Private Capital has worked with agencies in most states throughout the Midwest and Southwest, in developing a plan of how to most effectively utilize these programs and agencies in growing their business. Our Capital Advisory and Capital Networking services provide for optimization of these incentives in creating a capital structure to unlock the economic benefit of the programs. |
