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Can Title to the Real Estate be Held in the Name of an Entity Other than the Small Business Applicant?

The NMTC loan program actively ENCOURAGES the formation of a single-purpose, 'passive', multi member LLC entity as the primary borrower on a project.

Although NMTC loans are made based on the strength of the ‘active’ operating company that will be primarily occupying the project property, the borrowing entity on every NMTC project needs to be a Qualified Active Low-Income Community Business (QALICB).

It can be easier, from the perspective of the program, to qualify a new MULTIMEMBER LLC as a QALICB, versus some existing entity or a sole proprietorship, just because of the rules imposed on the program by the Department of Treasury.

Is Any Businesses Ineligible for Consideration under the NMTC Program?

The only business category excluded from participating in the NMTC program, are those small businesses primarily involved in selling alcoholic drinks / beverages.

From time to time, however, CRF will, for reasons of credit concentrations, restrict applications from certain industry categories.

For example, applications from / for gas station or motel projects are currently restricted.

For more information contact CLS to check updated restriction lists.

NMTC Eligibility

The NMTC program works in a similar fashion to the SBA 504 loan program. At least three parties are involved:

• a partner bank lender (who finances approximately 50%, or more, or less, of the total project);
  
  
• the NMTC program (which provides financing for 35% or 40% of the project, in a junior position behind the partner bank lender); and,
  
  
• the business borrower (who has at least 10% or 15% at risk in the project).

One significant difference between the NMTC program and the SBA 504 program is that the NMTC program is a loan-to-value financing tool and the 504 program is a loan-to-cost financing tool. This difference is an important one to understand.

Use of Funds:
NMTC financing can be used to provide takeout or permanent financing for businesses (including nonprofit businesses) seeking to purchase, construct or rehabilitate buildings primarily occupied by their businesses.

Loan Size:
The minimum NMTC loan share is $50,000. The maximum loan share is currently $2,500,000.

Loan Term:
A NMTC loan is a fully amortizing 25 year term loan.

Minimum Equity Requirements:
For NMTC loans (NMTC share) less than or equal to $500,000, the borrower must have at least 10% equity in the project (i.e. 90% financing is available). For NMTC loans greater than $500,000, either a minimum equity of 15% or some credit enhancement position will be required.

Property Valuations:
A current appraisal is required on all financing packages in excess of $250,000.

Loan Fees:
The origination fee for the borrower is 0.5% plus a closing and document preparation cost of $1,000 plus applicable title reporting and recording fees. There are no partner bank lender fees associated with the NMTC program.

Prepayments:
No partial prepayments are allowed and the prepayment in full of the NMTC loan prior to the seventh year of the loan is strongly discouraged because of the HUGE prepayment penalty attached to the loan.

Monthly Loan Payments:
Borrowers must agree to remit monthly loan payments via automatic debits / ACH payments.

Collateral:
A NMTC loan is usually secured by a junior lien on the real estate being financed.

Occupancy Requirements:
The operating company involved with an application for NMTC financing, must generally (exceptions are allowed) occupy a minimum of 51% of the real estate collateral involved with the project. The NMTC program, just like the SBA 504 loan program, is intended to primarily help active small businesses and not necessarily landlords and developers.