New Markets Tax Credits · Alabama
Alternative Risk Strategies LLC (a Community Development Entity (CDE)), helps Alabama businesses and community organizations use federal and state New Markets Tax Credits (NMTCs) to close the last 20–25% of a project's capital stack — the gap that decides whether a project gets built at all.
New for this cycle: the federal New Markets Tax Credit was made permanent in 2025, and Alabama operates its own state credit that can be paired with it. Manufacturers, healthcare providers, food retailers, schools, community facilities, and small businesses in qualifying Alabama census tracts are all potential candidates.
Start here
A New Markets Tax Credit is a federal tax credit that Congress created to move private capital into places conventional lenders underserve. It does not go to the business. It goes to an investor — and the price of that credit is capital delivered to a project in a low-income community on terms no bank would offer.
Congress established the program in the Community Renewal Tax Relief Act of 2000. An investor makes a qualified equity investment and earns a credit worth 39% of that investment, claimed over seven years. In exchange, the money is deployed into a qualifying business in a qualifying census tract, and it has to stay there for the full seven years.
Since 2003 the program has delivered roughly $40 billion in credits to more than 7,100 projects nationwide — manufacturing plants, grocery stores, clinics, schools, community centers, and small businesses. Roughly 69% of recipients are for-profit companies and 30% are nonprofits. In 2025 Congress made the credit permanent.
A corporation or bank with federal tax liability wants to reduce it. The New Markets program lets it do that — but only by routing capital into a distressed community first.
That capital reaches your project as a below-market, interest-only loan for seven years. When the seven years are up, the portion funded by the credits is typically forgiven.
You are not selling equity in your business and you are not taking on a conventional second mortgage. You are accepting subsidized capital in exchange for a seven-year commitment to stay qualified.
The U.S. Treasury office awards allocation authority — the right to issue credits — to Community Development Entities through a competitive national round.
A certified Community Development Entity uses that authority to raise capital from investors and select the projects it will finance.
Typically a bank or corporation. It makes a qualified equity investment in the CDE and claims 39% in credits over seven years.
The CDE lends the proceeds to the qualifying business on below-market, interest-only terms. That loan funds construction, equipment, and working capital.
The problem we solve
An Alabama sponsor puts together the plan: a $12 million plant expansion, a replacement clinic, a grocery store in a food desert, a workforce training center. The demand is documented. The operating model works. Then the capital stack comes up short.
A bank will lend against collateral and cash flow. Grants and public sources cover a slice. The sponsor contributes what equity it has. And there is still a seven-figure hole between total project cost and committed sources — the funding gap. In low-income and rural Alabama communities, where appraised values are low and comparable sales are thin, that gap is structural. It is not a sign of a bad project. It is the reason good projects in these communities stall.
New Markets Tax Credits exist for exactly this. They convert an investor's federal and state tax appetite into subsidized capital for the project.
In a New Markets transaction, an investor makes a qualified equity investment in a Community Development Entity in exchange for tax credits. The CDE lends the proceeds to your project on below-market, interest-only terms for a seven-year compliance period.
At the end of that period the structure typically unwinds, and the portion of the financing funded by the credits — commonly 20–25% of the qualified investment after fees — is forgiven or transferred to the sponsor for a nominal amount.
Net effect: subsidy that behaves like equity, sourced from tax credits rather than from your balance sheet.
Two credits, one transaction
Alabama is one of a limited number of states with its own New Markets program layered on top of the federal credit. Structured together, the two materially deepen the subsidy available to an Alabama project.
The Alabama credit carries an exclusion the federal program does not: a business that derives, or expects to derive, 15% or more of its annual revenue from the rental or sale of real estate cannot be the qualified business. Sponsors with real-estate-heavy structures should have this tested early.
Requirements
Eligibility runs on a federal definition — the qualified active low-income community business, or QALICB, under IRC §45D(d)(2). Alabama's program adopts the same definition and adds its own conditions. Every test below must be met at closing and maintained for the seven-year compliance period.
How the gap funding works
New Markets capital is not a substitute for conventional financing. It sits on top of it. A typical Alabama transaction assembles a leverage loan from the sponsor's bank or a community lender, adds sponsor equity, grants, and public sources, and then uses the New Markets structure to fill what remains.
Because the credits are claimed by the investor over seven years, the project receives the benefit up front as cheaper capital, and the sponsor commits to keeping the business compliant for the full compliance period.
The illustration is directional. Every deal is sized off the real sources-and-uses, the CDE's allocation terms, and — for the Alabama credit — the certification capacity available at the time of closing.
Directional only; not a quote or commitment.
The amber band is the reason the project moves. It is funded by investor tax credits, carries below-market interest-only payments for seven years, and is typically forgiven or transferred to the sponsor when the structure unwinds.
Where it works
New Markets capital is sector-agnostic — what matters is the census tract, the business tests, and the community impact. Nationally the program has financed manufacturing plants, grocery stores, clinics, schools, and small businesses in every state. These are the categories we see most often in Alabama.
Plant construction and expansion, equipment, supplier facilities, and food processing — a national priority for 2026 allocations.
Rural and critical access hospitals, health centers, behavioral health, dialysis, and clinics. Named a Treasury priority for 2026.
Grocery stores and food hubs in underserved areas, cold storage, and neighborhood commercial anchors.
Charter and independent school facilities, early learning centers, and career and technical education space.
Training centers, apprenticeship facilities, and employer-partnered skills programs tied to local hiring.
Nonprofit headquarters, recreation and youth centers, arts and cultural venues, and social service campuses.
Owner-occupied commercial space, incubators, and downtown revitalization where the operating business — not the rental income — drives revenue.
Broadband and connectivity hubs, logistics facilities, and energy or utility-supporting operations serving distressed areas.
The 2025 tax law made the federal New Markets Tax Credit a permanent part of the code, with roughly $5 billion in annual allocation authority expected. Sponsors can plan multi-year capital programs against it instead of racing an expiring provision.
Alabama has extensive qualifying and severely distressed census tracts, plus a state New Markets credit that can be paired with the federal one — a combination most states do not offer.
The most recent national round pushed 24.2% of allocation into rural communities, and CDEs are actively seeking qualifying non-metro pipeline. Rural Alabama projects are competitive.
Next step
The fastest way to find out whether New Markets Tax Credits can close your gap is a short screen. Give us the project summary, project address, the total project cost, and the shortfall you are trying to fill. We will run the census tract, test the business against the QALICB requirements, and come back with a straight answer — usually within a week, at no cost.
Tell us these four things and we will come back with a straight answer, usually within a week, at no cost:
What the path looks like
A word of caution. New Narket Tax Credits take time! The transaction time can take up to 2 years. Timelines depend on US Treasury deadlines, CDE allocation availability, state certification capacity, and how ready the project is when it reaches us.
We map the site to its census tract, run the QALICB tests against your entity structure, and confirm the Alabama-specific real estate revenue test. You get a written go / no-go with the issues that need fixing.
Sources and uses, confirmed lender and equity commitments, and a credit sizing that shows exactly how much subsidy the structure can deliver and what it costs to get it.
Prepare the NMTC application and submit it to the US Treasury. Applications are typically due in December with award allocations coming out the follwing fall. There is a separate application to the Alabama Department of Commerce for state certification where the state credit is being used.
Investor, leverage lender, ARS, Mariposa, and sponsor documents negotiated in parallel. Compliance covenants and reporting obligations are set here — this is where the next seven years get defined.
The qualified equity investment is made and construction draws begin.
Annual certification that the business remains qualified, ongoing impact reporting, and management of the year-seven exit that delivers the forgiven portion to the sponsor.
Questions we get
No. The credits are claimed by an investor, not by you, and the structure is assembled by the CDE, the investor, and counsel. What you need to bring is a qualifying project, a real funding gap, and the willingness to meet seven years of compliance obligations. We handle the rest of the vocabulary.
Transaction costs — legal, accounting, CDE fees, audit — do not scale down well. Below roughly $5 million in total project cost the subsidy usually gets eaten by the cost of capturing it. Sponsors with several smaller sites sometimes aggregate them into one qualifying business to reach workable scale, which is worth exploring on the screen call.
During the seven-year compliance period the CDE loans are outstanding and typically carry below-market, interest-only payments. At the end of the period the structure unwinds and the credit-funded portion is generally forgiven or transferred to the sponsor for nominal consideration. That is the economics, not a guarantee — the exit is negotiated at closing and documented in the deal.
Yes — roughly 30% of New Markets projects nationally are nonprofit-sponsored. Nonprofits generally borrow through a wholly owned taxable or disregarded entity that serves as the qualified business. The investor claims the credits; the nonprofit gets the subsidized capital.
Then this program is not the route for that site, and we will tell you on the screen call rather than after months of work. There are other Alabama pathways worth evaluating — including the Growing Alabama Credit, the Alabama Jobs Act, the employer childcare credit, and the Rural Hospital Investment Tax Credit — and we can point you at the right one.
The credits can be recaptured from the investor, and the deal documents will push that risk to the sponsor through covenants and indemnities. This is why the compliance obligation is negotiated carefully at closing and monitored annually. It is manageable, but it is a real seven-year commitment and should be treated as one.
No. The state program is capped at $20 million of credits usable in any single tax year and certifications are made in order of application. Availability at the time you are ready to close is a live question, and we confirm current capacity with the Alabama Department of Commerce as part of sizing.
