New Markets Tax Credits Will Spur Investments in North Carolina’s Low-Income Communities

Earlier this month, TD Bank, headquartered in Toronto, CA, was selected to receive a $65 million New Markets Tax Credit (NMTC) allocation. These tax credits will be used to make investments in urban and rural low-income areas in Florida, North Carolina, and South Carolina.

The New Markets Tax Credit Program was established in 2000 as part of the Community Renewal Tax Relief Act, with the goal of incentivizing revitalization efforts in low-income and impoverished communities. It provides tax credits to investors for equity investments in certified Community Development Entities (CDE), which invest in low-income communities. The credit equals 39% of the investment paid out (5% in each of the first three years, then 6% in the final four years, for a total of 39%) over seven years. CDEs, defined as, “a domestic or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in Low-Income Communities (LICs),” must be certified through the Community Development Financial Institutions (CDFI) Fund, must be a legal entity, and have a primary mission of serving LICs (more on CDEs here).

TD Bank’s NMTC allocation will have an immediate impact on small businesses and communities across North Carolina.  Research has shown that every $1 in foregone tax revenues due to the NTMC results in $14 of investments in LICs.  TD bank has 23 branches in North Carolina, primarily in the southern and western parts of the state. The NMTC allocation will help borrowers access financing for the purchase, construction, and renovation of real property. It will provide qualifying businesses with below-market interest rates and more flexible loan terms like longer amortizations and higher loan-to-value ratios. The types of businesses that will be directly impacted include charter schools, commercial real estate developers, child care providers, churches, and other nonprofits. This is particularly important now, as many small businesses cannot access affordable financing from traditional lenders, either due to the cost or due to the tightened qualifying criteria for loans.

– Ed Timberlake, Small Business Lending Manager

The U.S. House of Representatives Passes the JOBS Act to help Small Businesses Grow

Against the backdrop of the lowest national unemployment rate in three years (at 8.3 percent), the House passed a new bill on March 8 to further boost job creation through smaller businesses. Called the Jumpstart Our Business Startups (JOBS) Act, it is a package of House bills that has the mission “to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” The bill focuses primarily on removing barriers for smaller firms to raise capital to expand and, ultimately, increase hiring. In particular, the JOBS Act would:

•  Allow smaller companies to trade publicly earlier and easier.
  • Creates a new category called an “Emerging Growth Company,” which would have a lower reporting requirement for the first five years of public offering or until it becomes a large accelerated filer by the SEC definition or have more than $1 billion in annual gross revenue.
  • Raises the SEC registration threshold to $50 million, from $5 million.
  • Raises the SEC registration threshold to 1,000 shareholders, from 500.
  • Increases the shareholders permitted to invest in a community bank to 2,000.

• Increase the pool of public funds available to small companies.
  • Allows small companies offering securities to advertise and solicit investors.
  • Removes SEC limitations that stop entrepreneurs from using resources like Kickstarter or Slow Money NC (also called “crowdfunding”) to raise equity.

The provision regarding community banks, the Capital Expansion Act, is particularly relevant, as we know that access to capital is a major issue for very small businesses. This act will give community banks more flexibility in lending to small businesses, which will in turn spur economic development at the local level. More specifically, according to a press release from Senator Robert Hurt from Virginia, the act “will reduce the regulatory burdens on small financial institutions and eliminate an impediment of raising equity capital from new shareholders without triggering SEC oversight in addition to prudential regulation.”

Unlike much of what we have seen from Capitol Hill lately, this bill received support from both sides of the aisle and from President Obama (his statement of administration policy is available here.)  The only real criticism over the bill has been that it has not gone far enough, as Representative Nancy Pelosi stated earlier Thursday.

Now the bill is off to the Senate for another vote.   “The Senate version could even go a little further than the House version, and I would also hope that we take some needed precautions on investor protection,” said Senator Charles Schumer, at a Senate Banking Committee hearing March 6^th according to the AP Wire.  Let us hope that the legislators can continue to work together to promote the growth of small businesses.

– Sarah Grimme, Development & Policy Associate

EXPERT ADVICE: Why you should seek a USDA Guaranteed Housing Loan

In today’s economy, many borrowers are not looking to purchase a home due to the out of pocket expense.  Paying closing costs and putting money down is really challenging. There are programs, however, designed to help homeowners out, like the U.S. Department of Agriculture’s (USDA) Guaranteed Housing Loan program.  The greatest advantage of the USDA Guaranteed housing loan program is that home buyers can receive  up to 103% financing. This program is designed to assist low- to moderate- income homebuyers to purchase homes in rural areas and achieve their dream of homeownership.   To determine if a property is in an eligible rural area, visit the USDA website and click on one of the programs under the “property eligibility” link on the left side of the page. After you are directed to the next screen, you can type in the state or zip code to see if the property is eligible.

Why should a borrower want a USDA guaranteed loan? The term ‘guaranteed loan’ may be confusing.  Here is how the program works: an approved lender provides the funding for the loan, while USDA guarantees the loan up to 90%. USDA will allow the lender to provide up to 103% financing. Although USDA does not provide funding for these loans they do guarantee the repayment of the loans to approved lenders. Put another way, you are not guaranteed a loan. Rather, the loan funds are guaranteed to the lender should you default on your payments.  Because the government is guaranteeing the loan, USDA approved lenders are more willing to provide these loans to qualified borrowers.  The maximum loan amount is based on the county of residence and there is no purchase price maximum. USDA has flexible credit guidelines, and non-traditional credit maybe accepted.

Who is eligible to purchase a USDA home?  You must still qualify for a guaranteed loan. But the good news is this USDA product is not limited to first time homebuyers. Anyone who plans to purchase in an eligible rural area as their primary residence may apply for a USDA guaranteed loan. You must provide stable income and credit history should indicate your willingness to meet repayment options.

If you’re interested in seeing if you qualify for a USDA loan please email us. We would love to help homeowners reach their dream. Please email us at homeloans@thesupportcenter-nc.org.

– Sonia Jones, Housing Resource Director

Consumer Financial Protection Bureau Convenes First Small Business Review Panel

Early last week the Consumer Financial Protection Bureau (CFPB), which was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, announced that it will be holding its first Small Business Review Panel.  According to the law, when a proposed regulation will significantly impact small entities, the CFPB is required to convene a panel to get input directly from these entities on how they will be impacted and how those impacts can be mitigated.

CFPB’s new mortgage disclosure regulations aim to streamline disclosure forms and more clearly provide information to consumers about the costs of their loans. This will make some things much easier for banks. For example, CFPB will be simplifying the information required by the Truth in Lending Act and the Real Estate Settlement Procedures Act, which require separate but overlapping documentation.  The new rules will also simplify information for consumers. CFPB’s proposal includes:

• Adding a disclaimer to clearly state that the preliminary loan estimates that banks provide, which outline the terms and cost of the loan, are estimates and are not the final cost.
• Requiring that the costs of services provided by affiliates of the lenders, which consumers are required to use for certain services, do not exceed any estimates provided. Currently, this rule only applies to the lenders.
• Requiring that all costs associated with a loan are provided three days in advance of the loan closing.

These new rules will apply across the board, to all banks large and small. Some community banks fear that the stricter lending standards and new regulations will increase the cost of mortgages, causing an undue burden for these smaller banks. Cam Fine, the CEO and president of the Independent Bankers Association (IBCA), expressed his concern in a recent article in the Washington Post. “The ICBA is very concerned that many of the new proposed mortgage rules will actually cause community banks to experience high costs,” he said, adding that agencies often “act with a broad brush.”

With the Small Business Review Panel, the CFPB is seeking to take these concerns into account to develop “thoughtful, research-based rules that take into account not only the benefits of consumers but also how businesses of all sizes will be affected,” according to Richard Codray, director of the CFPB.  What feedback will be received and how it will be used is yet to be seen, particularly since this is the first panel.  But we will get some insight 60 days after the panel, when CFPB will issue a report on the panel and the input provided.  It expects to release a rule for public comment in July.

-by Sadaf Knight, Policy & Research Director