While not-for-profit organizations have no federal tax liability and can’t directly use NMTCs, they could still benefit from the NMTC financing structure.

An NMTC investor with federal tax liability can receive the credits generated from the structure by making qualified investments in an NMTC-eligible community. The invested equity flows through the NMTC structure and ultimately to a qualified low-income community business (QALICB) or project, which is generally a subsidiary or a  business segment of the not-for-profit organization.

The QALICB can receive the benefit of the NMTC structure in the form of either equity or low-interest rate loans, with low-interest rate loans being a commonly preferred vehicle. The not-for-profit organization can then use the loan proceeds to complete their project, install equipment or for working capital.

Not-for-profit organizations can use NMTC financing as long as NMTC proceeds aren’t allocated for an impermissible purpose such as gaming or golf courses.

NMTC financing is competitive. The more compelling the mission of the not-for-profit organization and the more services provided to the low-income community, the more likely it is to attract financing. Also, CDEs and investors are placing greater emphasis on projects that focus on diversity, equity, and inclusion of the community.

Entity Types that Receive NMTC Funding

Following are some broad categories of entities that have received NMTC financing:

• Food banks and pantries
• Domestic violence shelters
• Homeless shelters and homeless service providers
• Daycare and early learning centers
• Museums
• Arts and entertainment providers
• Youth and family services providers
• Health services providers
• Recreation providers
• Addiction providers
• Not-for-profit incubator spaces
• Adult education providers
• Workforce training providers
• Private and public kindergarten, elementary, middle, and high schools
• Higher education institutions
• Federally qualified health centers (FQHCs)
• Community health centers
• Community centers

This list is in no way exhaustive. The common thread is that each entity type provides meaningful benefit to the low-income communities they serve.

Every CDE makes representations to the Community Development Financial Institutions (CDFI) Fund regarding how and where they will deploy their allocation.

Some CDEs focus only on specific asset types or entities, while others have a broader focus.

A CDE that primarily invests in manufacturing businesses in rural locations might not be a good fit for a not-for-profit organization serving the homeless in a city, but many CDEs are supportive of various types of not-for-profit organizations because of their impactful work.

Careful consideration of the mission and goals of your organization, its locations, the type of project, and the expected impacts in the community will often reveal several CDEs that might be interested in bringing NMTC allocation to your project.

Yes.

The most common way not-for-profit organizations qualify for NMTC financing is based on location. A project, however, can qualify and attract NMTC financing by servicing targeted populations that are owned by, employ, or derive income from transactions with persons considered low income.

Qualifying for NMTC financing using the targeted populations test does add an additional layer of complexity to an already complex financing structure and requires additional compliance certifications throughout the compliance period. This added complexity has traditionally caused some CDEs to shy away from transactions using the targeted populations test.

There has, however, been discussions within the NMTC industry regarding the need for more CDEs to embrace targeted populations transactions. Given the impact that many not-for-profit organizations have in their communities, these organizations might make a compelling enough case to attract NMTC financing using the targeted populations test.

NMTC financing isn’t “as of right.” Even compelling projects don’t always obtain NMTC financing. Attracting allocation can sometimes come down to being in the right place at the right time.

Sometimes, a project simply isn’t ready when a CDE has allocation or, conversely, a CDE that is committed to a project might not receive allocation and be unable to bring allocation to a project. Obtaining NMTC financing is a competitive process with a limited amount of allocation authority available every year, so it is important to tell your story in a compelling way in hopes of garnering interest from multiple CDEs.

Yes. It’s possible to look at the operations of the not-for-profit organization to determine if NMTC financing might be available.

The same minimum size of NMTC financing is applicable and the NMTC proceeds will need to be used within 12 months of closing, but working capital can be a permissible use of the proceeds.  

Using NMTC proceeds for working capital, however, hasn’t been a traditional use of NMTC financing. While it’s gaining acceptance in the NMTC industry, there are pre- and post-closing compliance considerations.