The Opportunity Zones Program is yet another lending and investment program designed to spur development in the nation’s low-income (Black and Hispanic) communities, this one created by the prior Administration. The program was been created to benefit a small group of people, and has had limited positive community impact. (Still, it is a program you should be familiar with.) According to the US Department of the Treasury, "an Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service." To see a video of our testimony at the IRS Hearing on Opportunity Zone (OZ) Regulations, click here.
To get a hard copy of the presentation on Proposed OZ Regulations, link here."Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories. A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone."
While the amount of money potentially available is greater, the timeframe for investors to receive Opportunity Zone benefits is limited, and therefore, may make it harder for women and minority firms to receive funding.
Request Advice!Many Opportunity Zone Funds have noted their desire to make small business financing available, so it should be easy to identify potential funders. The problem is that the program is still very new, with many of these Opportunity Zone Funds still being formed. In addition, as we saw with the NMTC program, saying you will invest in small businesses is different from actually investing in small businesses. There is still a bias toward real estate that seems to be imbedded in each of these programs.
As with NMTC funding, we think this will be mainly a real estate financing program. Very few dollars will be allocated to small business financing, and fewer still to women and minority businesses, but if you can access this type of funding, it should be on flexible, lower cost than normal terms.
As with NMTC and microcredit financing (and especially because many microcredit lenders may be in or focus on Opportunity Zones) these Qualified Opportunity Zone Funds will have a specific geographic focus. A business is eligible for Opportunity Zone investments if all of the tangible property owned or leased by the business is in an Opportunity Zone. And it must meet the requirements for an enterprise zone business (below).
To make the best use of this resource, we suggest you research specific Opportunity Zone Funds to find out exactly what they look for when it comes to eligibility.
"A qualified Opportunity Zone business is a trade or business in which: (i) substantially all of the tangible property owned or leased is located in a qualified Opportunity Zone, (ii) at least 50% of the business’s total gross income is derived from the active conduct of a qualified business within a qualified Opportunity Zone, (iii) less than 5% of the average of the aggregate unadjusted bases of the business’s property must be attributable to nonqualified financial property; and (iv) a substantial portion of the business’s intangible property must be used in the active conduct of a qualified business in a qualified Opportunity Zone." "To qualify as an eligible Opportunity Zone Business, a business must demonstrate that substantially all its tangible business property is located within a Qualified Opportunity Zone."
If you are a minority or women-owned business, your ability to leverage Opportunity Zone loans from a Qualified Opportunity Zone Fund, as with New Markets Tax Credit funding, will be enhanced by the careful, ethical application of political pressure.
Certain businesses are not eligible for Opportunity Zone funding, including a: “private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.”
The following documents may be required:
Fees vary widely for NMTC lenders.
Other Fees include Late Payment Fees, Closing Fees, taxes.
Apply For LoanMinority Small Business Opportunity Zone financing.
The Opportunity Zone program was originally intended to help investors with large capital gains. These investors tend to be wealthy and white. They will also tend to be greedy, and view investing in women and minority firms as a low profitability activity. (Funny thing is, due to the very racism and discrimination we cite, they won't be wrong.) Women and minority firms located in low to moderate communities will find it tough to benefit directly from the Opportunity Zone program, despite the fact that "the average Opportunity Zone consists of 56% minority residents." (In a speech given in San Francisco, California before the Greenlining Coalition’s First Annual Minority Economic Development Conference on March 5, 1994, we called for the creation of tax advantaged community development programs to provide equity capital to women and minority-owned businesses located in low income census tracts). It has not worked out that way. Still, it is worth spending some time to evaluate Qualified Opportunity Zone Funds to see if they provide loans to or make investment in minority and women run businesses in your community. Chances are they don't.
As with venture capital, most online lenders, and microcredit firms targeting women and minority businesses, Opportunity Zone firms have to be geographically focused. You must conduct a comprehensive review to determine if any work with women and minority businesses. If you need help, contact us.
According to INC Magazine, "Many states have passed a tax credit for minority business. The provisions and limitations of these credits vary from state to state. Many of them resemble the New Market Tax credit and give tax credits against state income tax to investments that are used to support minority building projects or encourage minority business ownership, which includes women-owned businesses. However, these credits are extremely tough to get and are highly competitive." Look for other tax credit programs at the State and local level that you may be able to use. Just don't put all of your eggs in the Opportunity Zone basket....it's likely to have a hole in it.
The IRS and the US Department of the Treasury.
We have included some forms and templates you might find helpful in your search for OZ capital.
These sample funding documents are educational in nature. You will still need to review all documents with your team and with a lawyer.
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