Contributors:
Trevor Nelson, Strategic Financing Services Manager
Joe Hennessee, Strategic Financing Services Senior Manager
The federal New Markets Tax Credit (NMTC) program provides funding to sponsors who make qualified investments in businesses or projects located in designated low-income communities. For manufacturers, this program offers a compelling value proposition — a savings of up to 20% of the total project cost.
The NMTC program is an incredibly advantageous and under-utilized tax incentive, particularly for cutting-edge industrial companies with growing workforces looking to expand their facilities.
A Win-Win for Communities and Companies
The Benefit
Companies looking to derive value in sourcing various economic incentives for ambitious projects can obtain financing from an organization certified as a Community Development Entity (CDE). Through NMTCs, investors can then receive a transferable tax credit worth 39% of the investment, which is claimed over seven years.
Almost every sponsor works with a tax credit investor to provide an upfront injection of cash liquidity on the day of closing worth up to 20% of the project once fees and the investor discount are accounted for. As a result, tax credits can help manufacturers obtain the necessary capital to invest in new equipment, facilities or technologies, thereby increasing value and efficiency.
Community Revitalization
By using NMTCs to expand operations in targeted communities, manufacturers can accelerate developments that might not have otherwise occurred. In doing so, the businesses that receive allocations are incentivized to create jobs for low-income individuals, significantly benefiting struggling communities by boosting the local economy as intended by the program. As with many other lucrative economic development incentives, the hope is that 70-100 jobs will be created per $10 million of allocation invested into a project.
While each project and area differ, this baseline serves as a quick litmus test of how attractive a project might be for this competitive credit. The culmination of all the stakeholder’s efforts is a positive impact on the local economy, along with the well-being of community members.
Success Stories
Cherry Bekaert has a track record of assisting manufacturers in the pursuit of growth. Over the last year, our team has supported the closing of $99,500,000 in federal new markets tax credit allocation with an average of just around $20 million per deal. This represents an average cash infusion of roughly $4 million. We help bridge the knowledge gap and serve as a guide to securing financing for much-needed revitalization, services and resources in underserved communities.
Jones Lumber Gloster, LLC
In 2021, Jones Lumber Gloster, LLC acquired an underutilized lumber mill and planned to renovate and expand the facility. With the help of the Renaissance Community Loan Fund and Hancock Whitney Bank’s New Markets Fund, Jones Lumber Gloster was able to secure $10.5 million of federal, and $7.1 million of state, NMTC allocation. It received an additional $8 million of federal, and $2.8 million of state, NMTC allocation. The investment created 93 direct jobs in an economically distressed area where the poverty rate is 30.8% and the unemployment rate is 15.10%.
Brown Packing Co.
In 2023, Brown Packing Co., Inc. received a $13.75 million investment from The Innovate Fund to upgrade its facilities and equipment. The investment allowed Brown Packing to meet evolving industry standards with best-in-class equipment and technology. The $15.1 million project was financed utilizing sponsor equity, a loan from Bank of America, N.A. and NMTC equity from The Innovate Fund, LLC. The investment provided a significant boost to the local economy with the creation of job opportunities and upgraded facilities to meet industry standards.
Bienville Lumber
Hunt Forest Products and Tolko Industries Ltd. partnered to remediate a brownfield site to develop a new sawmill. Bienville Lumber received $14 million in NMTC allocation from Peoples Bank, $9 million from AMCREF Community Capital and $20 million from the National New Markets Fund (NNMF) to help fund the project. The total project cost was $270 million, with a 10.8% increase due to a rising interest rate environment. However, with the help of the NMTC subsidy, the project was able to leverage funding from Hunt-Tolko Leverage, LLC to proceed.
Let Us Be Your Guide
Cherry Bekaert’s Strategic Financing Services team is comprised of knowledgeable professionals who are here to guide you through the NMTC application process. Reach out to our specialists if you have questions or would like to learn more about this program. By getting involved in NMTCs, you will not only benefit your business but also contribute to the economic growth and well-being of your local community.
