How the New Market Tax Credits Program can help with hotel financing
By Elaine Simon
Dee Clemmons is a master of multitasking. She’s a business owner and franchisee, a business coach and consultant, a former county commissioner, a community advocate, an angel investor, a wife and a mother.
She’s also a master of finding ways to pay for projects, even though it can feel daunting for women, especially, to find the money they need to finance their hotels. Clemmons has had success with nontraditional options, such as the New Market Tax Credits (NMTC) Program.
She shared highlights of the program and how to get the most out of it during Red Roof’s recent SHE Leads Forum. The event was held in October at the Fairmont Dallas and was designed to provide the more than 200 attendees insightful information and tools to support, help and elevate themselves for future success.
The NMTC Program attracts private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities. The credit totals 39 percent of the original investment amount and is claimed over a period of seven years.
Businesses seeking funding from the New Markets Tax Credits Program apply to local Community Development Entities, which are certified by the Community Development Financial Institutions (CDFI) Fund, administered by the U.S. Department of the Treasury.
The program is set to expire on Dec. 31, 2025, but two bills were introduced earlier this year, one in the U.S. House and one in the Senate, proposing to make the program permanent. Both remain under consideration.
According to Clemmons, the NMTC Program is attractive because of the low-interest loans it provides.
“If you are approved for these loans, these loans typically are less in interest rate than your typical traditional loans,” she said. “The other thing that I like about the New Market Tax Credit loans is they are interest-only for the first seven years. If you can't make a business profitable in seven years, sell it.”
If a borrower pays on time every month during those seven years, that principal is forgiven, Clemmons said.
While some women at the Forum discussed experiences where they felt like they were at a disadvantage when attempting to secure financing because of their gender, Clemmons’ advice was for the women in the audience to not underestimate their influence in their businesses and to take advantage of their leverage.
“If you are 51 percent [owner of your] hotel project, if you're 51 [owner] of your hospitality [group], if you're 51 percent in any business, you can be certified as woman-owned,” she said. “So that $5 billion that I'm talking about is New Market Tax Credits that go through CDFIs, they go through Community Development Entities, they also have certain amounts of these dollars that are set aside specifically that have to be used for women-owned businesses.”
Taking the step of becoming a certified woman-owned business can offer a number of advantages when it comes to programs such as this, she said. It’s one of a host of talking points that will assist in the process of acquiring government funding.
“In the communities that you're building your hotels in you'll hear people talk about affordable housing resources, you'll hear [housing and urban development], you'll hear community revitalization, you’ll hear tax reform programs, historic tax credit,” Clemmons said. “How many of you have a hotel that's in a historic area? How many of you have a hotel that's in an agricultural community? How many of you have a hotel that's in a manufacturing community? [How about a] community [that] is all about green energy and renewable energy? How many of you want to do a hotel that is a green hotel? These are the things that are really good key points that you want to talk about when you're looking for government funding.”
Not every project qualifies for NMTC funds, and it’s important to know what the criteria are and how to put your project in the best light, Clemmons said.
Making sure to point out who benefits from your project is key, she said.
“[The project may benefit] the community because you're increasing jobs, you're reducing the poverty rate, you're making the community green. You’re taking an old building and you're revitalizing it. Make sure you have an idea of why your project should be selected,” she said. “It is a very competitive process because people who know about this already, they're already going after these dollars.”
Other items Clemmons suggested to point out in an application:
· Providing job training
· Creating a hospitality community
· Offering health care for employees
· Hiring 30 full-time employees
· Attracting tourism to the community
· Providing healthy food in the on-site store
Clemmons also recommended using existing approved grants as templates. Federal and state grants are public information and must be provided to anyone making a Freedom of Information Act request: “Get a copy, drop it in Word and [update it],” she said.
Another source Clemmons highlighted during her presentation is the Accion Opportunity Fund, which is committed to advancing economic mobility for women and people of color who own small businesses and low-income communities through affordable financial services, knowledge resources, networks and policy. It has invested more than $516 million in various businesses.
“They educate, they provide loans and they provide coaching,” Clemmons said. “If you're looking for access to capital, if you're looking for business strategy, you're looking for marketing, you're looking for certification and procurement, meaning that you want to be certified as a woman-owned business … you want to learn how to navigate the system of the [Community Development Financial Institutions Fund], they have seven national coaches. It's absolutely free.”
Clemmons is one of those coaches. Visit Red Roof Franchising's RIDE website for more from her on small business tax credits.
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