Federal Tax Credits and Loans

Federal Historic Preservation Tax Credit

The federal tax credit program provides either a 20% historic tax credit or a 10% non-historic income tax credit, based on the qualified rehabilitation expenditures and dependent upon the type of building as described below. For both tax credit amounts, the buildings must be used for income-producing purposes and the rehabilitation must be “substantial"

Historic Preservation Credit:

  • 20% one-time credit on rehab costs
  • Certified historic structure or contributing in historic district
  • Substantial rehabilitation
  • Income producing property only
  • Must follow Secretary of the Interior Rehab Standards
  • State Historic Preservation Office approval
  • Detailed three-part application process

Older Building Credit:

  • 10% one-time credit on rehab costs
  • Building placed in service before 1936
  • Substantial rehabilitation
  • Commercial or industrial only
  • NOT eligible for Historic Preservation Tax Credits
  • Exterior/ interior wall retention requirements

Federal Low Income Housing Tax Credit

Federal housing tax credits are awarded to developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property can in turn offer lower, more affordable rents.  Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their Federal tax liability each year over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable housing.

  • Annual credit for 10 years
  • New construction or substantial rehab
  • Can be combined with other federal programs and tax exempt bond financing
  • Permanent rental housing
  • Qualification criteria (income/rent/state approval)
  • 20% of units must be occupied by tenants with incomes below 50% area MFI  OR 40% of units must be occupied by tenants with incomes below 60% area MFI

Small Business Administration (SBA) Guarantee Loan Programs

The Federal Government expands the amount of bank loans for business working capital and fixed asset financing through two main programs offered through lending institutions.

SBA 7(a) Loan Program:

The SBA provides loan guarantees to approved banks and some other approved lenders.  In the event of default by the small business, the SBA is willing to reimburse up to 85% of the loss that the lender would otherwise sustain.  Consequently, lenders may be willing to accept a greater credit risk and grant more favorable terms than they might otherwise. SBA also has a revolving line of credit loan guaranty program but very few banks are willing to participate.  SBCs that are poor credit risks or fail to clearly articulate their ability to repay the loan will probably be rejected.

  • Lender-based program
  • Federal government guarantees up to 85% of loan
  • Working capital, real estate
  • Bank and SBA underwrite the deal
  • Loan amounts up to $2 million

SBA 504 Loan Program:

The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.

A Certified Development Company (CDC) is a private, nonprofit corporation which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development. Typically, a CDC/504 project includes:

  • A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost.
  • A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the project cost.
  • A contribution from the borrower of at least 10 percent of the project cost (equity).
  • This type of setup means that 100% of the project cost is covered either by contribution of equity by the borrower, or the senior or junior lien.