Skip to Content


Identifying Capital Sources

The “return profile” an equity investor gets is highly dependent on how cheap debt can be, and how much incentive a project can attract. Conversely, the amount of debt a project can attract is related to how much equity and incentives it has. At the end of the day, capital stacking comes down to capital sourcing – can you find the right mix of debt, equity, and incentives to actually make a deal work? To help you identify some potential sources of cheaper debt, better equity, and project incentives, we’ve created the list below.

But be warned – this list is not exhaustive, and trying to layer these capital sources on top of each other gets complicated quickly. This site is not intended as legal or business advice, and we encourage you to apply for our Property Development Assistance Program or contact us if you want to start building your own capital stack.

Sources of Debt


There are three big “buckets” of institutions that provide debt – traditional lenders (primarily banks), alternative lenders (primarily community development financial institutions, or CDFIs), and governmental sources (like HUD or USDA). In addition to traditional banks, there are a few specialized programs that can reduce the cost of debt by lowering the interest rate, extending the term, or removing the need to provide personal guarantees or collateral.

Read More About Sources of Debt


Traditional Banks

Traditional banks have programs that may offer you cheaper debt. Most of those programs are focused around one of the targeted subject matter (like rural deals, housing targeted at people with certain income levels, disadvantaged business loans, etc.). When discussing your project with a traditional bank partner (local, regional, or national), make sure their COMMUNITY REINVESTMENT ACT (CRA) Officer is a part of the conversation as traditional banks have more flexibility to take on unique lending opportunities if they qualify for CRA credit.

Read More

To find banks in your area, you can view publicly available lists from multiple sources, such as the Office of the Comptroller of the Currency’s (OCC) Financial Institutions List, Federal Reserve Board (FRB) Lists, Federal Deposit Insurance Corporation’s (FDIC) Bankfind Suite, Consumer Financial Protection Bureau’s (CFPB) Institution’s List, and more. OPAL has a wide network of banking relationships and relationships with CRA officers that we bring to bear for our PDAP projects and, when needed, our investment opportunities.


Alternative Lenders

There are a legion of non-traditional lending sources that can provide access to capital when a bank cannot (or will not). These sources aren’t always cheaper, but they are oftentimes more flexible in how they can approach credit decisions. We discuss four such sources – CDFIs, local revolving loan funds, debt-based crowdfunding, and program-related investments – all of which can provide capital for both real estate deals and operating business investments and that are typically more “impact oriented” than other alternative lending sources (which can be extractive rather than additive for impactful deals). OPAL has a wide array of relationships with CDFIs, revolving loan funds, and foundations making program-related investments across Alabama, and we encourage you to reach out to us if you are interested in this capital source.

Read More
  1. CDFIs are certified by the U.S. Treasury Department as a special kind of financial institution uniquely suited to provide capital to low-income places. CDFIs make loans that traditional banks won’t. They can be more flexible in underwriting both real estate developments and operating businesses, and – thanks to government-backed programs – can oftentimes offer credit where it would not be otherwise available. CDFIs have access to dozens of lending programs across multiple areas (including specialty rural programs, housing programs, community facilities programs, and others). OPAL maintains a list of CDFIs active in Alabama, but if you want to explore out of state coverage, visit the Opportunity Finance Network CDFI Locator or the CDFI Fund’s Certified CDFIs List
  2. Local revolving loan funds offer low-interest loans that can be used to cover anything from business operations to predevelopment expenses. They have a different flexible underwriting process than traditional loans, making them ideal for more unique (but typically smaller) investment opportunities. Depending on where you are in Alabama, they are administered by a variety of public and private entities, including regional planning commissions, governmental entities, local electric cooperatives, and even private nonprofit organizations. Contact OPAL to identify revolving loan coverage in your area. 
  3. Debt-based crowdfunding – unlike a traditional Kickstarter campaign, this model comes with some expectation of repayment – but unlike equity crowdfunding (discussed below), the repayment structures are much easier, and the compliance obligations are far less strict. Sites like Kiva and Honeycomb Credit offer partnerships to launch debt-based crowdfunding campaigns if you’re interested in this being a part of your overall strategy. 
  4. Program-Related Investment (PRI) programs are sponsored by local foundations and typically go to the highest impact projects. PRIs are typically structured as interest-only debt with long maturities and balloon notes – and they can even be forgiven under certain circumstances (effectively converting them into grants). To get in touch with foundations making PRIs in Alabama, reach out to OPAL about your project.


Governmental Sources

Governments may be the single biggest source of specialized loan products. State and local governments and development finance authorities have a bewildering array of loan programs at their disposal. Most federal loan subsidies are indirect – i.e., the federal government backs a loan made by a private lender (like SBA 7(a) loans) or provides a local entity with capital for the loan (e.g., HUD 108) – but there are a few direct-to-project programs offered by HUD, USDA, and other agencies. OPAL can help you access these programs, depending on the needs or parameters of your opportunity.

Sources of Equity


Because equity investors own a percentage of the assets of the business and the cash flows coming out of it, they are best categorized by what kind of “return profile” they need in order to justify an investment. For the purposes of understanding what these “return profiles” look like, we will focus on three specific criteria: (1) how much an investor is being asked to invest, (2) how much the business (or development) will increase in value over time, (3) how much net cash flow the investment can produce over time. To provide “apples to apples” comparisons of different investment opportunities (e.g., real estate and operating businesses), investors use a handful of metrics that tie each of these three variables together to provide return profile numbers:


Cash-on-Cash Return

Annual Return on Investment

This metric compares how much an investor invested to how much cash the investor receives over time. For example, a $100,000 investment that produces a $12,000 a year net cash flow (after paying expenses and making debt service payments) has an annual cash-on-cash return of 12%. Cash-on-cash returns take (1) and (3) above into account – but ignores (2) (how much the business will increase in value over time).


Equity Multiple

Overall Return on Investment

This metric looks at total net profit over the life cycle of an investment, divided by the cost of that investment. For example, if you hold the same $100,000 investment producing $12,000 a year for five years ($60,000 total), then sell it for $140,000 (resulting in a total sum return of $200,000), your equity multiple would be 2.0x because you doubled your initial $100,000 investment. The actual formula is $140,000 (sale) + $60,000 (cash flow) divided by the original $100,000 you invested. This equity multiple is helpful because – unlike cash on cash – it looks at overall appreciation of the investment, not just how much cash it produces.


Internal Rate of Return

Discounted Overall Return on Investment

An important principle that the equity multiple does not consider is that a dollar in hand today is more valuable than the hope of a dollar in the future. “Internal Rate of Return” (or IRR) addresses this principle by applying a “discount value” to future cash flows that increases the further out an investment sells. In other words – a deal that produces $200,000 in total return over three years will result in a higher IRR than the same deal that produces $200,000 in total return over five years. The full IRR formula is complex – even top investment professionals typically use spreadsheet formulas to auto-calculate it – so we won’t go into the formula here (unless you really want to know). Rather, to best assist you in understanding how IRR works (and how IRR is affected), we recommend experimenting with the GroundUp tool. It illustrates how changing sale dates, and assumed cash flows over time, impact the IRR.

Equity can either enter a deal directly (individual investors investing directly into an underlying business or real estate opportunity) or indirectly (via a fund, where multiple investors pool their money under common management, then invest that money into a deal). There are a few broad categories of potential equity investors described below. However, we strongly encourage you to reach out to the OPAL team if you need help identifying which groups listed under each generic capital source below are active in Alabama.

Read More About Sources of Equity

Source 01

Private Equity Funds

Private equity funds are groups of individual investors that have put dollars into a common pool under a common manager. These funds take multiple forms – some are Opportunity Funds, some are Small Business Investment Companies (SBICs), some are impact-oriented, but most are market-rate funds without any kind of special tax advantages that are looking at investment. They typically have dedicated management teams and are looking at a national or regional pipeline of potential investments. OPAL’s family of funds includes a number of private equity funds that deploy to real estate deals across Alabama. 

Source 02

Qualified Opportunity Funds

Qualified Opportunity Fund (QOFs) are distinct investment vehicles which investors must invest their capital gains through in order to receive Opportunity Zone tax benefits (see the Opportunity Zones Guidebook for more information). Though there are many large QOFs active in Alabama (including multiple managed by OPAL Advisory), any individual investor with a capital gain can create their own QOF via IRS FORM 8996 – however, before doing so, we highly recommend individual investors consult their accountant and legal counsel so they can make the best decision for their respective situation.

Source 03

Small Business Investment Companies (SBIC’s)

Small Business Investment Companies (SBIC’s) are privately-owned investment companies licensed by the Small Business Administration (SBA). SBIC’s can provide qualifying small businesses with equity and/or debt financing, usually in the range of $100,000 – $250,000. Because SBIC’s are matched two dollars by the SBA for every dollar of capital they raise, SBIC’s are able to provide more favorable terms to the small businesses they allocate capital to. You can find a comprehensive list of SBIC’s at the following SBA link:

Source 04

Equity-Based Crowdfunding

This form of crowdfunding allows small dollar value investors to own actual equity in the investment opportunities listed on the hosting platform. As a result, it means investors can receive a return on their investment. However, equity-based crowdfunding comes with intense state and federal securities regulation, creating huge compliance hurdles and ongoing reporting obligations. You’ll almost certainly need a partner who knows the landscape to effectively access this equity source. Here are several options to explore and their area(s) of focus:

Source 05

Minority and Women-Owned Business Enterprise (MWBE) Venture Funds

Minority and Women-Owned Business Enterprise (MWBE) venture funds have been created to address the inequity in the investment community. These funds are managed by under-represented groups (to create more agency for historically marginalized communities), take investment from all investors but typically include under-represented investors (to support equitable wealth building), and/or invest in businesses and projects owned or managed by under-represented individuals (to create more equitable access to capital). Here are a few resources for those looking to work with MWBE managers, investors, or projects/companies.

Source 06

Impact Funds

Impact funds seek investments that provide both a desirable financial return, and measurable benefit to society or the environment. Some impact funds focus on investing in specific impact niches (affordable housing, workforce development, clean energy, affordable healthcare, etc.), while other impact funds have a broader impact focus that creates a wider spectrum of investable projects. OPAL works with a number of impact funds active in the Southeast (and in Alabama in particular); however, if you want to explore impact funds nationally, you can explore the following directories:

Sources of Incentives


When properly deployed, incentives can be the most powerful tool in the capital stack. As above, there are dozens of federal, state, local, and private programs that could provide incentives as part of the capital stack. This is the spot in the capital stack where OPAL likes to create the greatest value for our projects.  If you are interested in learning more about any of these incentives, fill out our contact form.

Read More About Sources of Incentives

Source 01

Tax Credits

Investment into certain kinds of activities – like low income housing, historic buildings, or renewable energy facilities – generates federal tax credits. Each of these tax credits has a certain value. For example, federal historic tax credits (HTCs) are equal to 20% of the qualified rehabilitation costs of a project, meaning a building with $5 million in qualified costs will generate $1 million in tax credits. You can convert those credits into cash for your deal by finding a third party that does have income tax liability to “buy” the $1 million in credits from your project at a discount (say $850,000). That cash – net of transaction costs – is the “free money” that shows up for your project. The State of Alabama offers a parallel tax credit for historic projects worth 25% of qualified rehabilitation costs – and unlike the federal credit, it can be refunded for investors without tax liability (meaning you do not need to find a “purchaser” to buy your credits at a discount). OPAL specializes in working unique tax credits like state and federal historic tax credits, New Markets tax credits, state investment tax credits, and others into capital stacks. For more on tax credit transactions and how OPAL can help, see our Tax Credits Guidebook.

Source 02

Local Government

City and county governments across Alabama can incentivize private economic development through the use of special purpose entities (like cooperative districts or redevelopment authorities), or directly through the powers created by Section 94.01 (a/k/a Amendment 772) of the state constitution. The powers that localities have to incentivize development are uniquely broad in Alabama, and we encourage you to reach out to OPAL to scope their full potential for your project. However, their most common applications are:

  • Abatements: Abatements typically mean no sales taxes during a construction period or property taxes on purchased materials, land, or a building – except for any portions of those taxes that are earmarked for educational purposes. Abatements can run anywhere from a few months to 10+ years, depending on the degree of economic benefit the deal creates for the locality. 
  • Revenue Sharing: Revenue sharing comes from the idea that a project will generate new tax revenue for the city or state over time (e.g., a vacant parcel generates $0 in tax revenue, but one with a retail center on it will generate millions annually in sales and property taxes). Some or all of that new “increment” of tax revenue can either be (a) “shared” with the project – meaning ongoing cash subsidies over time – or (b) borrowed against to provide an up-front cash incentive at no cost to the project. 
  • Infrastructure: Most commercial real estate projects need substantial public infrastructure (from new water and sewer lines to parking lots and curb cuts). Cities and counties can perform this work for a development or reimburse the development for building the improvements and “dedicating” them to public entities.

Source 03

State Government

The State of Alabama makes a litany of incentives available to major economic development projects happening in Alabama – particularly in its rural areas. The Department of Commerce maintains most of these programs, and provides a helpful overview here, but to understand how state incentives might apply to your project, reach out to the OPAL team.

Source 04

Other Sources

Depending on the nature of the project, there may be other sources of capital to tap. These could be anything from grants for infrastructure improvements affiliated with the project to crowdsourced donations from platforms like Kickstarter, GoFundMe or IndieGoGo to fund predevelopment work or a pocket park or lighting to activate an alleyway. The OPAL team can help you scope your project to determine if there are any such buckets available and – if there are – what strategy you might pursue to get them.

Any information provided on this website is for information purposes only, and may change depending on future federal, state, and local rules, regulations, rulings or interpretations; no representation is made that the information on this site incorporates all existing rules or any future changes. This is not legal or accounting advice and is not intended to form any  relationship (fiduciary, lawyer-client, or otherwise). None of the information provided pursuant to, or related to, this website is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. Consult a licensed attorney and a certified professional accountant with knowledge of the resources described herein before making any investment or structuring decisions, including the merits and risks involved.