Glossary

Qualified Low-Income Community Investment (QLICI)

Also known as: QLICI

The below-market loan or equity investment a certified Community Development Entity makes, using capital raised through the New Markets Tax Credit program, into a Qualified Active Low-Income Community Business located in an eligible low-income census tract.

A QLICI is the mechanism through which NMTC-raised capital actually reaches a real estate project or operating business -- typically structured as a long-term, interest-only loan at a below-market rate to the project entity, known as the Qualified Active Low-Income Community Business or QALICB, with terms deliberately favorable relative to what the project could obtain in the conventional market, since delivering that below-market benefit to the QALICB is the entire economic point of the NMTC subsidy chain. The CDE must maintain its QLICI in compliance throughout the seven-year NMTC credit period -- the loan generally cannot be repaid, refinanced out, or restructured in a way that fails NMTC compliance testing before year seven without jeopardizing the investor's credits, which is why NMTC-financed loans typically carry structural features such as extended interest-only periods, back-loaded or minimal amortization, and specific prepayment restrictions designed to keep the investment in place for the full compliance period. At the end of the seven-year period, NMTC deals are frequently unwound through a 'put-call' mechanism in which the QALICB, or an affiliate, has the contractual right to acquire the CDE's and investor's interests in the investment fund for a nominal price, effectively allowing the project sponsor to extinguish or absorb the QLICI debt at a steep discount to its face amount -- the final step that converts the QLICI's below-market terms into a permanent, realized subsidy for the project.