With permanent authorization at $5 billion annually, the New Markets Tax Credit (NMTC) program offers financial institutions greater certainty as they consider long-term community development strategies.
Community investment has long been a priority for banks. Still, many institutions may be overlooking a tool that can support Community Reinvestment Act objectives, generate fee income and strengthen relationships in the communities they serve.
Through the NMTC program, financial institutions can play a larger role in financing economic development in low-income and underserved communities. Forming a certified Community Development Entity (CDE) can provide a framework for pursuing NMTC allocation authority and directing capital to qualifying projects.
What Is a CDE?
A CDE is an organization certified by the U.S. Department of the Treasury to serve low-income communities. CDEs may apply for NMTC allocation authority, then use that allocation to attract private investment for qualifying businesses and development projects.
For a bank, a CDE can support a broader community development strategy while creating opportunities to expand relationships with businesses, nonprofits and project sponsors.
How a CDE Can Support Your Institution
Federal Tax Credit Opportunity
NMTC investors receive federal tax credits equal to 39% of a qualified equity investment over seven years, helping attract private capital to qualifying projects.
Support for CRA Objectives
NMTC investments may support Community Reinvestment Act goals and demonstrate a measurable commitment to the communities your institution serves.
Potential Revenue Opportunities
Institutions may earn fees related to structuring, deploying and managing NMTC allocations, creating a potential source of non-interest income.
Stronger Community Relationships
A CDE can help financial institutions support businesses, nonprofits and development projects that may have limited access to traditional financing while expanding relationships throughout the communities they serve.
A Broader Community Development Strategy
A dedicated CDE can complement existing community investment efforts and demonstrate a long-term commitment to economic growth in underserved markets
CDE Questions To Consider
- Could forming a CDE support our CRA objectives and broader community development strategy?
- Is there sufficient NMTC activity and project demand in the markets we serve?
- What resources would be required to establish and operate a CDE?
- Could NMTC activities create opportunities for non-interest income?
- How would a CDE complement our existing lending and investment priorities?
Your Guide Forward
Permanent authorization of the NMTC program provides greater certainty for institutions evaluating community development initiatives. Beginning the planning process can help your organization assess whether a CDE aligns with its markets, resources and long-term goals.
Cherry Bekaert's Strategic Financing Services team helps organizations evaluate CDE formation, assess NMTC opportunities and navigate the certification and application process.
