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A key part to making the New Market Tax Credits (NMTC) program successful is the partnerships and investments by community banks and lending partners.
There are two avenues that banks are involved in the NMTC process: as a leverage lender and as an investor.
We gathered some insights from local lenders to get a better idea of these roles that banks play and why their investment is beneficial.
NMTC: A Transformative Program
Cole Keney – Alerus
Cole Keney, Senior Business Advisor at Alerus, has been deeply involved with Dakota Business Lending (DBL) and the NMTC program.
His experience as a lender and a member of both DBL’s Board of Directors and NMTC Governing Board gives us an overarching view of how the program benefits lending institutions and the communities they work to serve.
“NMTC is a highly effective federal program created to jumpstart investments in low-income and distressed areas. Investors receive tax credits for their participation, which encourages participation in projects that might otherwise not be able to move forward and positively impact local and regional economies.”
Benefits to Banks
Cole highlighted the key benefits for banks who participate in the New Market Tax Credits program.
“For banks who serve as a leverage lender on a NMTC project, they get to offer a creative financing option for their customers and continuing work with them. For banks or entities that invest in the tax credits, they can receive tax benefits and tie their investment in with existing CRA activities.”
Economic Development and Growth
Not only does the NMTC program benefit banks, but also the local communities and economies the projects are in.
“NMTC presents a huge potential and positive impact for job creation in local economies through increased sales tax, workforce attraction/retention, and more. The impact is even greater given that it is designed to benefit low-income communities, where it is often difficult to attract investments.”
From the Desk of a Leverage Lender
Joel Kostelecky – First International Bank & Trust
Joel Kostelecky has been in the commercial lender role for over 21 years and currently works at First International Bank & Trust. Joel and his team provided close to 60% of the financing as a leverage lender in one of DBL’s recent NMTC projects.
His experience offers valuable insight into the NMTC process and the benefits banks received from this type of investment.
“The responsibilities on the leverage lender side were very similar to any other traditional lending and, for the most part, I was able to look at the project the same as I would any other banking project. I got to continue to work with my borrower and provide them a financing solution that they would otherwise not have access to.”
Leverage Lender Benefits
Joel shared some of the benefits his bank received from serving as a leverage lender in the NMTC project.
“From a banking standpoint, using the NMTC program significantly reduces the bank’s potential risk. Our investment also fulfills several community needs, creating quality and accessible jobs in our area. We received CRA credit due to the location of the project.”
Challenges of a Leverage Lender
One of the most challenging aspects as a leverage lender for Joel was understanding the program and all the pieces that bring it together.
“The NMTC program can be complex. We had an entire team working with us, so we all had to make sure we were on the same page. DBL had so many knowledgeable and experienced members on their team who were able to guide us through the process. They met with us and had many in-depth conversations when all the decision makers were in the room.”
An Investor’s Viewpoint
Dan Blocher – U.S. Bancorp Impact Finance, a U.S. Bank subsidiary
Dan Blocher works as a Business Development Officer at U.S. Bancorp Impact Finance – a major NMTC investor.
His experience in the NMTC world gives us a look into the investment side of the program and how this aligns with broader banking strategic goals.
“I’ve been working in the NMTC space for over 14 years, and this program aligns perfectly with our investing and lending goals. It’s a very targeted program that focuses on low-income and distressed census tracts, so we’re able to invest dollars into areas that need it most.”
Investor Benefits
In 2023, U.S. Bancorp Impact Finance invested in more than 120 projects across the country. To date, Impact Finance has invested in all $60M of DBL’s NMTC allocations across two different award rounds. In 2023, Impact Finance also provided an EQ2 investment of $880,000 to DBL.
“The NMTC program allows us to not only receive tangible tax benefits but invest in economic development projects to help build thriving communities. These investments can close income and access gaps, drive business growth, create jobs, and pour capital into historically underserved areas that need it most.”
Measuring the Impact
U.S. Bancorp Impact Finance, as well as many other NMTC investors, measure the impact of their NMTC investments through comprehensive data collection and analyses.
“There are two touchpoints that help us measure the tangible impact these investments have. On the front end, we capture a lot of the expected outcomes throughout an intake form. We also capture this data through a Community Benefits agreement at closing. This helps us, leverage lenders, CDEs like DBL, and all other parties involved to track and measure the impact of the program.”
Banks and lending institutions play a valuable role in the success of this transformative program. DBL is always seeking lending partners, community banks, and other local entities to invest in NMTC or serve as leverage lenders in NMTC projects and looks forward to creating and furthering lending partnerships to maximize the program’s impact.
For more information about the NMTC program or to get involved, visit our webpage.
