The New Markets Tax Credit Benefits Local Business Owners and the Community Alike
At Greater Fergus Falls, our goal is to help local business owners and the community thrive. Our team is skilled in connecting new and established companies with resources to help their business grow, including funding. While grants and other traditional sources are vital for companies, it’s also essential to think outside of the box and look at unconventional funding options. On that note, we wanted to share some insight into a financial program many are not aware of: the new markets tax credit (NMTC). Scroll below to get the details!
What is the New Markets Tax Credit?
The new markets tax credit is a crucial funding source for rural and urban businesses and communities. The tax-credit program was developed as part of the Community Renewal Tax Relief Act of 2000 in an effort to “bring down the cost of capital in communities outside of the economic mainstream.” The program is “designed to stimulate commercial investment in ‘low-income communities’ — a distinction based on a census tract data map, which includes a majority of the Fergus Falls area,” explains Chad Landmann, a Business Banker at Bremer Bank in Fergus Falls.
How the New Markets Tax Credit Works
NMTC is a unique type of funding and often benefits qualified businesses better than conventional options. Rather than taking out a bank loan, business owners can secure financing from NMTC investors for projects in rural or underdeveloped areas. These investors provide capital to approved community development entities (CDEs). In exchange, the investors receive tax credits against their federal tax obligations, totaling 39% of the NMTC project. These credits can be collected in as little as seven years, with investors claiming 5% for the first three years and 6% for the final four years.
Bremer Bank is a CDE for the Fergus Falls area and has awarded several local businesses with NMTC funds. The program provides flexible terms to businesses looking to add value to the community through various projects, some of which may not happen otherwise. Landmann says the ability to support local businesses and the community as a whole is one of the most rewarding parts of NMTC.
How a Business Qualifies for an NMTC Project
Since the program's purpose is to improve the community, NMTC funding is awarded to projects that provide a service or add jobs to the area. Some of the projects that typically utilize the new markets tax credit program are business incubators, daycare facilities, health centers, and manufacturers. Landmann also sees applicants looking to expand or purchase real estate.
Many people are surprised to find that a project doesn’t have to be large to qualify for NMTC. While that’s often the case in other areas of the country, even small projects can be eligible to receive NMTC funding. Bremer Bank believes it’s important to make the program attainable for businesses of all sizes and has reserved some funding for smaller-scale projects.
Benefits of NMTC
It’s safe to say that NMTC has a significant impact on improving the community. Not only do NMTC-financed projects revitalize the area, but in many cases, they create new jobs and contribute to the local economy. But, there are also many advantages for those who receive new markets tax credit funding. Some of the benefits borrowers could experience include:
Below market interest rates (often with interest-only payments up to a 7-year term)
Potential loan forgiveness
Aura Fabricators Opened a New Location in Fergus Falls Using NMTC Funding
Jasmine Sonmor, owner of Aura Fabricators, used NMTC to expand her business from Dalton, Minnesota to Fergus Falls. Aura Fabricators has seen exponential growth since it was founded by Sonmor in 2014. To meet the demand her customers required and combat a workforce shortage in the area, the company decided it was time to open a second location.
Working with Bremer Bank, Sonmor began exploring the different funding options available. She and her team considered several prospects before the bank suggested securing funding through the new markets tax credit program. After learning about the program and the financial benefits, Sonmor agreed to move forward with the process. She recalls, “I don’t think I would have taken the risk if funding options such as NMTCs didn’t exist … Overall, it provided us with the financial means to invest in our business expansion and gave us incentives to take the risk.”
In addition to working with an experienced lender like Bremer Bank, Sonmor urges those hoping to utilize NMTC to be patient with the process. “So many pieces need to fall into place before you sign the papers. It took a lot of reassurance from the bank that the benefits were worth the wait and uncertainty. We persevered and trusted that things would work out in the end.” And, they certainly did. Because of the funding received through NMTCs, Sonmor was able to expand her business operations, opening Aura Fabricators’ second location in Fergus Falls and bringing new jobs to the area.
Sonmor’s first-hand experience gave her valuable insight into how important these types of programs are for rural communities. She says she will consider using the new markets tax credit again in the future, and she encourages other business owners to, as well. “Communities like Fergus Falls deserve to grow and thrive; to do so requires businesses to invest in communities that sometimes get forgotten about when it comes to job creation and business development,” she says.
For more information about starting, expanding, or relocating a business in the Fergus Falls community, get in touch with our team. Greater Fergus Falls is your go-to resource for everything from navigating the start-up process to connecting you with funding through various local, state, and federal programs.