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Track Record, Including Exhibit B, are Critical Components to a Competitive NMTC Application

Published by Bob Ibanez on Friday, January 6, 2023

Journal Cover January 2023   Download PDF

Each year, the Community Development Financial Institutions (CDFI) Fund awards $5 billion in new markets tax credit (NMTC) allocation authority to competing community development entity (CDE) applicants.

The application for a NMTC allocation award has five main sections:

  • Part I: Business Strategy (Exhibit A & Exhibit B)
  • Part II: Community Outcomes 
  • Part III: Management Capacity (Exhibit C & Exhibit D) 
  • Part IV: Capitalization Strategy (Exhibit E) 
  • Part V: Information Regarding Previous Awards

Only the Business Strategy and Community Outcomes sections are scored during Phase 1 of the application review process. In addition, there are also up to five priority points relating to the number of years of providing capital or technical assistance to Disadvantaged Businesses or Communities (DBCs). The CDFI Fund’s evaluation of track record for purposes of claiming up to five priority points is based on the information provided in Exhibit B and the responses to Questions 20 and 21 (i.e., Track Record) in the application.

The importance of earning the five priority points cannot be overstated. It is no secret that applying for an NMTC allocation is extremely competitive, so earning up to five priority points is an essential ingredient to achieving a final rank score that puts an applicant in line for an award. Consequently, the decision on whether to complete Table B4 (and respond to Question 21) should not be taken lightly.

Table B4 is used to reflect an applicant, or controlling entity’s track record of successfully providing loans, equity investments and/or financial counseling that do not directly correspond to the selections in Question 13 (e.g., Restricted NMTC Activities, loans and/or investments in NMTC investment funds or non-CDE financial institutions, personal or consumer loans and residential mortgages) but are similar to the proposed NMTC activities. While at first blush, this may appear to be a prerequisite to completing Exhibit B or otherwise appear to be to an applicant’s advantage, it may in fact result in a very significant disadvantage if it causes the overall percentage in Exhibit B of loans to, or investments in, DBCs to decline.

The CDFI Fund has an Application FAQ that clarifies “Responses to Question 21 and Table B4 are not required. Applicants should consider responding to Q. 21 and completing Table B4 if the applicant has less than five years of track record in QLICI-like [qualified, low-income community investments-like]financing activities to report in Table B1-B3 and doing so would demonstrate a track record of serving Disadvantaged Businesses or Disadvantaged Communities or a track record of serving nonmetropolitan counties."

In addition to factoring heavily in the determination of earning up to five priority points for DBCs, Exhibit B is also used by the CDFI Fund to evaluate whether the requested NMTC allocation amount (Q. 1) is consistent with the applicant’s record of direct financing or otherwise facilitating financing activities that would qualify as or are substantially similar to QLICIs, based on the narrative provided in Q.20 and Tables B1-B3; as well as financing activities that would not qualify as QLICIs, based on the narrative provided in Q. 21 and Table B4.

In addition to Exhibit B, more generally, the importance placed on an applicant’s track record of previous investments by the CDFI Fund is reflected in the CDFI Fund’s “CY 2021 General Characteristics of a Highly Ranked Application” document. For example, it points out that:

  • although Q. 13 (QLICI Uses and Activities) is not scored, at least 70% of the applicant’s proposed NMTC investments were supported by a track record of similar business types and activity types;
  • the applicant demonstrated a track record of directly providing, during each of the past five years, products or services similar to those it intends to deploy with the qualified equity investment (QEI) proceeds (Qs. 20-21, and Exhibit B);
  • the applicant’s track record included providing loans or investments to similar business types. The applicant demonstrated that its most recent five-year direct financing track record was 90% or more of its projected NMTC deployment in Exhibit A (Qs. 13, 17, 20, 21, and Exhibits A and B);
  • the applicant demonstrated five or more years of experience providing capital and/or technical assistance to disadvantaged businesses and communities (DBCs). The applicant also demonstrated that at least 70% of its total dollar volume of direct financing activities has been provided to DBCs (Qs. 20-21, and Exhibit B);
  • An applicant with a relatively limited track record of QLICI-type activities could also score highly if it had a very strong five-year (or longer) track record of non-QLICI like investments that were clearly relevant to its business strategy (Qs. 20-21, and Exhibit B);
  • the applicant demonstrated a strong track record of achieving outcomes similar in type and quantity to the projected outcomes (Q. 26);
  • the applicant described a thorough track record and robust methodology for tracking all projected community outcomes (Q. 26); and
  • the applicant also demonstrated an extensive track record of project-specific community engagement in past investment decisions (Q. 27).

The CDFI Fund’s notes in the application also convey the importance of track record. For example, with respect to Part 1, Business Strategy, a note states: An applicant will score well in this section to the extent it can articulate, with specificity, its strategy to use an NMTC allocation and can describe a strong, relevant track record, including a track record of serving low-income communities (LICs). Also, in Part 1 under Prior Performance, a note states: An applicant that can demonstrate (either on its own or through its controlling entity) a strong, successful track record of providing products, services or Financial Counseling and Other Services (FCOS) similar to those that it intends to provide with QEI proceeds will score well under this sub-section.

With respect to Part 2, Community Outcomes, a note states: an applicant will score well in this sub-section to the extent that: (a) It (or its controlling entity) has a track record of producing quantitative community outcomes similar to those expected to be achieved. With respect to an applicant’s track record of establishing and monitoring community outcomes, a note states: An applicant that describes a thorough track record of establishing and documenting past community outcomes and a methodology for tracking future community outcomes will score more highly on this question. Finally, with respect to Q. 27, Community Accountability and Involvement, a note states: An applicant that can articulate meaningful involvement in low-income communities and with a variety of low-income community stakeholders, as well as a track record of community engagement (either directly or through its controlling entity) will be evaluated favorably under this question.

While in many respects the NMTC application is a forward-looking document, it is clear from the CDFI Fund’s guidance documents (i.e., application, FAQs, NMTC program review process), the importance placed on an applicant’s track record reflected in many of the aforementioned scored questions and Exhibit B. In determining your next application’s business strategy and financial product offering(s); priority pipeline, and community outcomes related to your priority pipeline, you will want to be sure to take into consideration your track record of investments, especially over the past five years, in LICs.

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