Rural Nebraska Funding Opportunities Workshop

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Rural Nebraska Funding Opportunities Workshop
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Presentation Roadmap

• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business
  Loan
• Overview of New Markets Tax Credit program

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Community Development Resources (CDR) Rick
Wallace, Ex. Dir
Nebraska Community Capital Fund (NCCF) Mark
Koller, Ex. Dir.
Nebraska New Market Resources, LLC (NNMR) Mark
Koller, Ex. Dir.
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• Community Development Resources (CDR)
• 1994 Started as Self Employment Loan Fund
  (SELF)
• 2001 Re-formed as an independent 501(c)(3)
  non-profit
• 2002 Achieved Community Development Financial
  Institution (CDFI) certification by the
  U.S. Treasury
• 2003 Name changed to Community Development
  Resources
• 2006 Formed two subsidiaries
• Nebraska Community Capital Fund.
• Certified Community Development Entity (CDE)
  Formed Nebraska New Markets Resources, LLC

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What We Do

• CDR is introducing three new financial products
  to Nebraska
• Nebraska Community Capital Fund
  (1st Qrtr 2007)
• NMTC Business Loans
  (Immediate)
• New Markets Tax Credit (NMTC) Program
  (Immediate)

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Presentation Roadmap

• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business
  Loan
• Overview of New Markets Tax Credit program

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• Nebraska Community Capital Fund (NCCF)

• A Community Collaboration Model for Nebraska
• In process of being formed, with expected
  roll-out date in 1st quarter of 2007.
• Based on Minnesota Community Capital Fund.
• NCCF members will include cities, counties,
  electric utilities, and regional development
  organizations.
• Members pool their limited local development
  financing resources together to access
  significantly more loan capital through a
  specialized national community development
  finance secondary market, which is operated by
  the Minneapolis-based Community Reinvestment
  Fund, USA (CRF).

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Why Build a Statewide Community Capital Fund?

• Unequal distribution of ED resources.
• Undercapitalized idle revolving loan funds.
• No mechanism to pool limited local resources.
• Lack of cooperation among communities.
• Limited local commercial lending expertise.
• Inefficient access to national capital markets.

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Fund Design Features

• Member escrow deposits capitalize loan fund.
• Any economic development organization can join.
• Gap financing source for business developments.
• 3 membership levels 25,000, 50,000, 100,000.
• 3 year commitment with money back guarantee.
• Interest income assigned to fund manager for
  administration.
• No annual or any additional fees paid by members.

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Fund Design Features

• 10-1 leveraging of member funds.
• Minimum loan 50,000.
• Maximum loan 1,000,000.
• No limit on number of loans.
• Fixed rate, subordinated loans with flexible
  terms.
• Local financial institution participation
  required.
• All loans sold to secondary market on same day as
  loan closingcontinuous loan fund
  recapitalization.
• We always have money to lend!

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Allowable use of Loan proceeds

• Real Estate.
• Purchase of land, buildings, and business assets.
• Building construction and renovations.
• Machinery and equipment.
• Acquisition, renovation or moving.
• Working capital loans.
• Secured by fixed assets with fixed repayment
  schedule.

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Financing ExampleManufacturing Building Expansion

• Project Value 1,200,000
• Bank 600,000 1st REM20 year
  amortization with 10 year balloon
• NCCF 420,000 2nd REM (same terms)
• Equity 50,000 In NCCF Pool

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Financing ExampleGrocery Store Building Purchase

• Project Value 360,000
• Bank 150,000 1st REM (20 / 10)
• NCCF 156,000 2nd REM (20 / 10)
• Equity 25,000 In NCCF Pool

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Whats in it for your community?

• 10 to 1 leveraging of your funds.
• No limit on the number of loans you can sponsor.
• Source of subordinated, fixed-rate financing to
  support local economic development.
• Reduced or no risk.
• Professional fund manager and loan officer
  services at no additional cost.

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Next Steps

• Goals
• Reach membership pool of 1,000,000
• Make first loan before end of 1st quarter 2007

We are currently seeking Letters of Interest
from organizations that are interested in
joining the Nebraska Community Capital Fund. Our
contact information is included at the end of
this presentation.
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Presentation Roadmap

• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business
  Loan
• Overview of New Markets Tax Credit program

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New Markets Tax Credit Business Loan

• The New Markets Tax Credit Business Loan offers
  qualifying borrowers yet another business
  financing option that may be the best financial
  choice. Eligible borrowers can obtain loans with
  lower interest rates and terms up to 25 years,
  creating a lower monthly payment and allowing
  borrowers to keep more cash in their businesses.
  The New Markets loan enables borrowers to expand
  and renovate their existing properties, buy the
  properties outright, or purchase additional
  property for business expansion.

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New Markets Tax Credit Business Loan

• Term sheet for the NMTC Business Loan that can be
  found on our web site www.cdr-nebraska.org

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New Markets Tax Credit Business Loan

• NNMR Loan Size
• Minimum 50,000.
• Maximum 1,500,000 unless otherwise specified
  with NNMR.
• Loan Interest Rate Minimum initial rate to the
  borrower must be based on 7-year Treasury plus
  240 basis points. Actual loan rate to the
  borrower will typically be set two days prior to
  loan closing. Rate is reset at 7-year
  anniversary, based on 10-year Treasury plus 300
  basis points plus any additional servicing fee.

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New Markets Tax Credit Business Loan

• Loan Fees
• A 1.00 origination fee.
• Loan Documentation fee of 250 for loans of
  250,000 or less.
• Loan Documentation fee of 500 for loans greater
  than 250,000.
• Transaction costs may include accountant, legal
  and/or appraisal fees reflecting the complex
  structure and compliance requirements of the
  program and/or the transaction.

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New Markets Tax Credit Business Loan

• Prepayment Penalty No partial prepayments are
  allowed. Upon a full prepayment prior to the
  seventh anniversary date, a prepayment penalty
  will be due which will be calculated as follows
• The then current principal balance of the note
  times initial rate times (one hundred twenty
  minus number of months from note date to date of
  prepayment) divided by twelve times 0.10.
• Example of Pre-Payment Penalty
• 500,000 loan 25 yr. term 7.00 rate.
• Pre-Pay in 20th month
• ((442,375.29 x 0.07 x (120-20)) / 12) x 0.10
  25,805.23

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New Markets Tax Credit Business Loan

• Payments All borrowers must agree to remit loan
  payments by automated payment/debit.
• Security Loan must be secured by a first or
  second lien on the real estate or equipment being
  financed.
• Owner-Occupancy Operating Company must occupy at
  least 51 of the real estate financed.

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New Markets Tax Credit Business Loan
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Presentation Roadmap

• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business
  Loan
• Overview of New Markets Tax Credit program

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New Markets Tax Credit

• NMTC Program Background
• Enacted on December 21, 2000
• Part of the Community Renewal Tax Relief Act of
  2000
• June 10, 2002 First issue of Notice of
  Allocation Availability
• March 14, 2003 The Fund announces that 66
  organizations were selected to receive 2.5
  billion of tax credit allocations under the 1st
  round.
• Final original Act allocation application period
  is 2007.
• Act was extended another year (through 2008) on
  Dec-8-06.

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New Markets Tax Credit

• Overview of NMTC Program
• Provides a credit against Federal income taxes
  for investors that make Qualified Equity
  Investments (OEIs) into Community Development
  Entities (CDEs)
• CDEs in turn use the proceeds of these
  investments to make Qualified Low-Income
  Community Investments (QLICIs)
• QLICIs include, among other things, investments
  in businesses and real estate projects in
  low-income communities.

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New Markets Tax Credit

• Credit Amount
• The credit is taken over a 7-year period
• The credit rate is
• In each of the first three years, 5 of the
  original investment amount
• In each of the final four years, 6 of the
  original investment amount
• Equals 39 of amount of original investment

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New Markets Tax Credit

• Example
• The Fund awards an allocation of 1 million to a
  CDE. The CDE offers the tax credit to a single
  investor in exchange for a 1 million equity
  investment. How much can the investor claim as a
  credit on its Federal taxes?
• Years 1 3 Tax credit at 5 Value 50,000
  per year
• Years 4 7 Tax credit at 6 Value 60,000
  per year
• TOTAL VALUE OVER 7 YEARS 390,000

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New Markets Tax Credit

• What is a CDE?
• A domestic corporation or partnership that is an
  intermediary vehicle for the provision of loans,
  investments or financial counseling in
  Low-Income Communities (LICs)
• CDEs are required to demonstrate that they
• Have a primary mission of serving, or providing
  investment capital for LICs or Low-Income
  Persons, and
• Are accountable to residents of the LICs that
  they serve
• Community Development Resources is a certified CDE

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New Markets Tax Credit

• What is a Low-Income Community?
• With at least 20 poverty rate or
• Where the median family income does not exceed
  80 of the area median family income or
• That have a population of less than 2,000, are
  contained within a Federally designated
  Empowerment Zone, and are contiguous to at least
  one other LIC or
• Where the median family income does not exceed
  85 of the area median family income, provided
  the census tract is located in a high migration
  rural county.

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New Markets Tax Credit

• Low-Income Communities (contd)
• Projects not located within LICs, but that
  otherwise serve Targeted Populations, may also
  qualify for NMTC investments.
• Targeted Populations include
• Low-income persons, to the extent the project is
  located in a census tract with a median family
  income at or below 120 of the applicable area
  median family income or
• For Gulf Opportunity (GO) Zone allocations,
  individuals that have been displaced from their
  homes and/or have lost their principal source of
  employment in the wake of Hurricane Katrina.
• Refer to IRS and CDFI Fund guidance for
  additional details.

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New Markets Tax Credit Business Loan
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New Markets Tax Credit

• Qualified Equity Investment (QEI)
• NMTCs are offered to investors for Qualified
  Equity Investments (QEIs) in the CDE.
• QEI is
• An equity investment in a CDE an equity
  investment is stock in a corporation or any
  capital interest in a partnership.
• The equity investment must be acquired by the
  investor at its original issue solely in exchange
  for cash.
• The equity investment must meet the
  substantially-all requirement, and
• The equity investment must be designated by the
  CDE.
• QEIs must remain invested in the CDE during a
  7-year credit period Investors claim credits as
  of the date a QEI is initially made.

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New Markets Tax Credit

• Timing of Investments
• CDEs must offer NMTCs to investors within 5 years
  of receiving an allocation.
• CDEs have 12 months to invest their QEI proceeds
  into Qualified Low-Income Community Investments
  (QLICIs).
• Generally, CDEs that receive returns of capital
  will have 12 months to reinvest those funds in
  QLICIs.
• Reinvestment is not required in the final year of
  the 7-year credit period.

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New Markets Tax Credit

• CDE Use of NMTC Proceeds
• Substantially All of the QEI proceeds must be
  invested in QLICIs within 12 months.
• Years 1 6 Substantially All 85 of the
  amount paid by investor at original issue
• Year 7 Substantially All 75

At all times, 5 of the original QEI issue amount
may be used for certain reserves by the CDE and
count towards meeting the substantially all
requirement.
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New Markets Tax Credit

• CDE Use of NMTC Proceeds (Contd)
• A CDE may demonstrate that it has satisfied the
  Substantially-All requirement in 2 ways
• Direct tracing
• Under direct tracing, CDE is required to trace at
  least 85 of the QEI proceeds to specified
  QLICIs.
• Safe harbor
• Under a safe harbor, a CDE must demonstrate that
  85 of its aggregate gross assets are invested in
  QLICIs.

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New Markets Tax Credit

• Qualified Low-Income Community Investments
  (QLICIs)
• Eligible Investments (QLICIs)
• Any capital or equity investment in, or loan to,
  any Qualified Active Low-Income Community
  Business (QALICB)
• Purchase of a loan from another CDE if the loan
  is a QLICI
• Financial Counseling and Other Services (FCOS)
  to businesses located in, or residents of, LICs
  and
• Any equity investment in, or loan to, any CDE.

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New Markets Tax Credit

• Qualified Low-Income Community Investments
  (contd)
• Requirements
• QEI proceeds must be invested in QLICIs through
  out the 7-year credit period.
• CDE reinvestment requirement
• Years 1 6
• Generally, returns of equity, capital or
  principal must be reinvested within 12 months.
• Periodic loan repayments may be aggregated for up
  to 24 months before reinvestment is required.
• No reinvestment required in year 7

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New Markets Tax Credit

• Qualified Active Low Income Community Business
  (QALICB)
• What is a typical QALICB?
• Loans to or investments in operating businesses
  located in LICs.
• Development of commercial, industrial, retail and
  mixed-use real estate projects in LICs.
• Development of community facilities, such as
  charter schools and health care centers, in LICs.
• Development of for-sale housing located in LICs.

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New Markets Tax Credit

• Qualified Active Low Income Community Business
  (QALICB)
• To be a QALICB
• At least 50 of the total gross income is from
  the active conduct of a qualified business in
  Low-Income Communities (LICs)
• At least 40 of the use of tangible property of
  the business is within LICs and
• At least 40 of the services performed by the
  business employees are performed in LICs

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New Markets Tax Credit

• Qualified Active Low Income Community Business
  (QALICB)
• To be a QALICB (contd)
• Less than 5 of the average of the aggregate
  unadjusted bases of the property is attributable
  to collectibles (e.g. art and antiques), other
  than those held for sale in the ordinary course
  of business (e.g., inventory) and
• Less than 5 of the average of the aggregate
  unadjusted bases of the property is attributable
  to nonqualified financial property (e.g., debt
  instruments with a term in excess of 18 months).

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New Markets Tax Credit

• Qualified Active Low Income Community Business
  (QALICB)
• To be a QALICB (contd)
• The gross income test is deemed to be met if
  either the use of tangible property or the use of
  services performed test is met at 50 or higher.
• If a business has no employees, it can meet both
  the services performed and gross income tests if
  it meets the use of tangible property test at 85
  or higher.

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New Markets Tax Credit

• Ineligible Activities
• Residential rental property
• Buildings or structures which derive 80 or more
  of its gross rental income from renting dwelling
  units
• Certain types of businesses
• Refer to IRS regulations for additional details.

Golf Courses Massage Parlors
Race Tracks Hot Tub facilities
Gambling facilities Suntan facilities
Certain farming businesses Stores where the principal business is the sale of alcoholic beverages for consumption off premises
Country Clubs
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New Markets Tax Credit

• Recapture
• NMTCs may be recaptured from investors during the
  7-year credit period if
• The QEI fails the Substantially-All requirement
• Failure to invest 85 as allowed
• Failure to meet QALICB requirements or
• Failure to meet one-year investment requirement
• The CDE ceases to qualify as a CDE
• The CDE redeems the investment.

It is not an event of recapture and an investor
may continue to claim NMTCs if a CDE files for
bankruptcy.
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Summary Graphic
New Markets Tax Credit
CDEs must make QLICIs within 12 months of
receipt of Investor QEIs
Investing in or Lending to QALICBs

Allocates Tax Credits
CDFI Fund
Community Development Entity (CDR)

Purchasing Loans from CDEs
CDE must offer credits to investors within 5 years

TC
Financial Counseling


Private Investors
Investing in or Lending to CDEs
QEI must stay invested in CDE for 7 years
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How to contact us

• Rick Wallace, Ex. Dir. CDR
• Mark A. Koller, Ex. Dir. NCCF, NNMR
• 285 S. 68th Street Place
• Suite 520
• Lincoln, NE 68510
• Office 402.436.2387
• Fax [phone]
• www.cdr-nebraska.org