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.