How the NMTC Program Works

Upon receipt of the allocation of New Markets Tax Credits that it has applied for, it will re-invest the cash equity received from investors in exchange for the tax credits into qualifying businesses.  These transactions will be facilitated through for-profit subsidiaries (CDEs) of Impact Seven created for this purpose, and the structure of a NMTC investment is illustrated below.

The diagram represents the flow of tax credits through the CDE to the investors, and the investor equity into qualifying businesses or other CDEs.  It shows that the CDFI Fund will allocate tax credits to select CDEs that are successful in the competitive national application process.  Private, tax-paying investors can then purchase the tax credits from the CDEs through cash equity investment. Substantially all (85% or more) of the cash investment must then be used by the CDE to finance or gain equity in Qualified Low Income Community Businesses or other CDEs. The Qualified Low Income Community Businesses must then make loan or equity repayment to the CDE, which is then funneled back to the investors after a seven-year period in the form of equity repayment, with additional return on investment possible throughout the period based on the performance of the business.

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