Over 90 percent of small businesses owners nationwide agree that one major obstacle to expanding business is access to capital. When small businesses owners lack money to operate, they struggle to attract investors, maintain day-to-day operations and grow and expand their businesses.
Being able to access capital to operate, function and grow is on the top of every entrepreneur’s priority list. However, traditional banking constraints can become obstacles for small businesses. That is why finding alternative sources for investment capital is imperative for small businesses.
The New Markets Tax Credit
One such alternative investment source for qualified small businesses is the New Markets Tax Credit (NMTC) program, which was designed to increase the flow of capital to businesses in low-income communities around the country by providing a modest tax incentive to private investors.
The NMTC has proven to be a cost-effective tool for driving capital to underserved markets. Whereas other investors would usually shy away from economically distressed communities and neighborhoods, investors taking advantage of the NMTC bring opportunities and the potential for prosperity to these areas.
How Are NMTCs Awarded?
NMTC programs are provided directly to small business investors in conjunction with traditional forms of investment, like bank loans. Small businesses must be certified as Community Development Entities (CDEs) by the Secretary of the U.S. Treasury in order for private investors to receive tax credits.
Many states have NMTC programs of their own, including Maine, Florida and Arkansas. Maine’s NMTC program is modeled after the national program and attracts investment capital to low-income communities throughout the state.
Overall, the NMTC program nationally has:
• Generated $8 of private investment for every $1 of federal funding
• Created 164-million-square-feet of manufacturing, office and retail space
• Financed over 4,800 businesses
State-run NMTC programs are proving to be a good option for small businesses that have trouble accessing capital. By providing investors with tax credits, states have capitalized on a program that will bring money and activity into the areas that need it the most.