How It Works

Leveraged NMTC Structure

The amount of NMTC allocation that a project can support is a function of the cash sources that a project has available to “leverage” through a NMTC structure.  The diagram below helps illustrate the following example:

  1. A project’s cash sources ( 80-85% of the capital stack) are first directed (“leveraged”) into a project specific Investment Fund.
  2. An investor makes a NMTC equity investment into the Investment Fund. In exchange, the investor receives tax credits over the next 7 years.
  3. The Investment Fund uses the aggregated capital to make an equity investment in a subsidiary of the CDE (sub-CDE) that has received a sub-allocation of the parent CDE’s NMTC authority.
  4. The sub-CDE then lends all of the cash sources, less certain transaction fees, to a Qualified Active Low Income Community Business (QALICB).

Sources of leverage may include any type of cash proceeds such as debt or bridge loans from a bank, bond proceeds, grants from city/state/federal agencies, sponsor or private equity, capital campaign proceeds, or other charitable contributions.