LISC National
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New Markets 101

The New Markets Tax Credit (NMTC) program is the largest federal community development tax initiative in 20 years. The program provides investors, such as banks, insurers, investment funds, corporations, and individuals with credits against federal income tax in return for new investments in eligible businesses and commercial and community projects in low-income areas. It is a flexible tool that can be applied to a wide range of qualified business activities, from small business lending to financial counseling to real estate development.

We try to simplify the New Markets process as best we can for our clients and borrowers. To get you started, we've broken down the program into its basics, or what we refer to as "NMTCs 101".

Let's Get Started

In the New Markets Tax Credit process, a CDE applies to the CDFI Fund for the authority to allocate NMTCs. An investor makes a QEI in a CDE to support a project and get the tax credits, and the CDE then makes a QLICI into a QALICB.

By now, we've probably scared you off! But let's introduce some vocab to straighten out these acronyms.


CDFI Fund (Community Development Financial Institution Fund) - CDFIs provide credit and financial services to underserved areas and groups. LISC is an example of a CDFI. The CDFI Fund is an agency within the U.S. Department of Treasury that certifies CDFIs and provides resources and federal dollars to help CDFIs achieve their missions. 

CDE (Community Development Entity) - A CDE acts as an intermediary between the investor, leverage lender, and the business receiving the NMTC financing. The CDE applies to the CDFI Fund for NMTC allocation and is often a CDFI, bank affiliate, part of a muncipality, or a nonprofit or for-profit group with a mission to serve low-income communities. LISC is both a CDFI and a CDE. The CDE uses capital from an investor to make a QLICI.

Investor - Invests equity capital and receives tax credits (often a major bank).

Leverage Lender - Makes a loan to an investment fund that is combined with investor equity capital to make QEIs. The leverage lender can be a bank, CDFI, or the project sponsor.

QEI (Qualified Equity Investment) - The QEI is the amount the investment fund invests in the CDE in exchange for tax credits. Investors can take NMTCs in an amount equal to 39% of the QEI over seven years. QEI is the same as the amount of NMTC allocation that a CDE provides to a project.

QALICB (Qualified Active Low-Income Community Business) - A QALICB is the business that receives the loan or equity investment from the CDE.

QLICI (Qualified Low-Income Community Investment) - The QLICI is the loan or equity investment a CDE makes to the QALICB.

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Frequently Asked Questions

Q: How effective is the NMTC program?

Since 2003, the program has attracted more than $90 billion in investment capital in low-income communities, with $31 billion in direct NMTC investments leveraging more than $60 billion from other public and private sources. The capital can be used to purchase real estate, construct, rehabilitate, or expand existing commercial and community facilities, or finance operating expenses.

New Markets investments have financed more than 5,400 businesses, helped create or retain 275,000 jobs, and supported 178 million square feet of manufacturing, office, and retail space. The NMTC program is highly beneficial, generating $8 in private investment for every $1 of cost to the government. Because of its success, the program was selected as a top 25 government program in the Harvard Kennedy School's Ash Center competition for the Innovations in American Government Award.

Q: Where must a project be located to be eligible for NMTC financing?

To receive NMTC financing, projects must be in low-income census tracts where the poverty rate is 20% or greater or the median family income is 80% or less than the area median. There are a few additional - but less common - ways in which a census tract can qualify. For an exhaustive list, please see the CDFI Fund website. If you're unsure if a project is in an eligible census tract, you can check it here or here, or send us the address and we'll be happy to check for you.

Q: How do investors benefit from the NMTC program?

Under the NMTC program, an investor making a seven-year QEI in a CDE receives NMTCs equal to 39% of the cash equity investment amount over the investment period (5% in years 1-3 and 6% in years 4-7). 

Q: What are LISC's and NMSC's roles in the NMTC program?

LISC has received over $1 billion in NMTC allocation, making it the largest allocatee in the country. With this investment authority, LISC has financed 136 transactions totaling more than $1 billion in QEIs. These projects represent 10.6 million square feet of commercial and community space, 672 housing units, and more than 13,000 construction jobs and 8,000 permanent jobs. New Markets Support Company (NMSC) manages LISC's NMTC activities.

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Malik Elliott, Senior Program Manager