Federally Subsidized Financing

The New Markets Tax Credit Program (NMTC) is a federal program that encourages investments which provide economic, social, or environmental benefits to low-income areas. The program provides loans that have interest rates which are typically 1 to 2 percent less than could otherwise be obtained, and borrowers only have to pay back 80 percent of the amount borrowed in seven years. The use of these loans in a project would necessitate the use of adjusted present value analysis. However, remembering that you should include all incremental costs in capital budgeting, NMTC loans are often more complex than traditional borrowing, which results in high legal and accounting fees. These additional fees should be included as an incremental cost when they would be incurred.