The Benefits of New Markets Tax Credit (NMTC) Financing

The New Markets Tax Credit (NMTC) program was created to encourage investment in projects in communities living with low incomes. Unlike conventional loans, NMTC financing combines debt and investor equity to provide borrowers with more affordable and flexible terms. For many organizations, this structure has made it possible to move forward with projects that would otherwise be out of reach.

How New Markets Tax Credits Reduce Project Costs

The first major benefit of NMTC  financing is the lower blended interest rate. Around 30 percent of a project’s cost is covered by tax credit equity at a 0 percent interest rate, while the rest is financed through conventional debt, owner equity, and/or grants/public funds. This structure produces a lower overall cost of capital compared to traditional loans.

Borrowers benefit because the reduced cost of capital leaves more cash flow available for operations, staffing, and programming. For organizations like charter schools or health care centers, the ability to direct more funds toward mission-driven activities instead of debt service is a critical advantage.

New Markets Tax Credit Loan Forgiveness

Another benefit of NMTC financing is loan forgiveness after the seven-year compliance period. Borrowers typically see up to 20 percent of project costs forgiven, which is recorded as equity. This makes NMTCs different from conventional loans, which rarely provide this type of long-term debt relief.

According to the Government Accountability Office, loan forgiveness has made the NMTC program a powerful tool for nonprofits and community-based developers who operate on narrow margins. One example is Capital Impact Partners’ support of Cornbread Farm to Soul in Brownsville, New York. Through NMTC, the restaurant expanded to a new location, improving food access in a community long considered a food desert, or an urban area in which it is difficult to buy affordable or good-quality fresh food. Once forgiveness is recognized, borrowers can redirect resources toward future growth or service expansion.

New Markets Tax Credit Larger Loan Amounts

A third benefit of NMTC financing is the ability to secure larger loan amounts. Traditional lenders typically restrict borrowers to 80–90 percent Loan-to-Value (LTV) ratios. By contrast, NMTC financing can exceed 100 percent LTV allowing borrowers to cover the full cost of a project.

This flexibility helps projects break ground when conventional financing falls short. For example, charter schools have used NMTC financing to build entire campuses, and health care centers have used it to finance full-service facilities without needing to secure multiple smaller loans.

How Capital Impact Partners Supports NMTC Financing

The NMTC  program is federally structured, but navigating it requires experienced partners. Capital Impact Partners has decades of experience structuring NMTC transactions that reduce borrowing costs, provide loan forgiveness, and make larger loan amounts possible for borrowers.

We work with charter schools, health care centers, and community-serving developers to bring essential projects to life. By engaging early, borrowers can prepare for eligibility, understand the benefits of New Markets Tax Credit financing, and maximize the financial advantages it provides.

The benefits of NMTC  financing are clear. By lowering costs, creating long-term equity through forgiveness, and allowing larger loan amounts, NMTCs provide borrowers with tools to make ambitious community projects possible. With the right guidance, these advantages can be fully realized, helping organizations expand their impact and strengthen their financial future.