EB-5 Funding: Are loans allowed?

The EB-5 Immigrant Investor Program offers foreign nationals a unique opportunity to obtain U.S. permanent residency by making an investment in a U.S.-based commercial enterprise that creates jobs. While the minimum investment required is $800,000 (for projects in a Targeted Employment Area, or TEA) or $1,050,000 (for projects outside a TEA), not all applicants have the funds readily available. This leads many investors to consider taking out a loan to finance their EB-5 investment.

In this article, we explore whether it is possible to take a loan to finance your EB-5 application, the requirements for doing so, and the different options available for securing a loan.

Can You Use a Loan for EB-5 Investment?

Yes, you can take a loan to finance your EB-5 investment, but there are several important considerations and requirements to keep in mind. The EB-5 program requires that the capital you invest must be “at risk” and that the funds used for the investment must come from a lawful source. This means that while taking out a loan is an acceptable method of financing your EB-5 investment, it must meet specific conditions set forth by U.S. Citizenship and Immigration Services (USCIS).

✧ Key Considerations for Using a Loan in the EB-5 Program

➤      “At-Risk” Investment Requirement

• The EB-5 program requires that your investment must be at risk to ensure that the funds are actually used to stimulate the U.S. economy. This means that even if you take out a loan, the loaned funds must be at risk for the purpose of creating jobs and stimulating business growth.

• Loans, especially non-recourse loans, can be a gray area in the context of the “at- risk” It’s crucial that the loan is structured in such a way that it does not guarantee the return of funds or secure repayment in a manner that would violate the intent of the program.

➤       Source of Funds

• **USCIS requires proof that the funds used in your EB-5 investment come from a lawful source. If you take out a loan, you will need to provide detailed documentation about the origin of the loan—whether it’s from a bank, family, friends, or a Regional Center—and show that the funds were legally obtained.
• If the loan comes from a third party (such as a bank or an investor), you will need to provide information about the loan agreement and the borrower’s qualifications, ensuring that the loan was properly documented.

➤       Loan Documentation

• USCIS will require detailed evidence of your loan, including the loan agreement, terms of repayment, and collateral (if applicable). This is to demonstrate that the loan complies with EB-5 regulations and is structured in a manner consistent with the program’s requirements.

Types of Loans You Can Use for EB-5 Investments

There are a few different types of loans that applicants typically use to finance their EB-5 investment, including loans from banks, Regional Centers, and friends and family.

➤ Loans from Banks

• Secured Loans: The most common type of loan from a bank is a secured loan, where the borrower pledges assets (such as real estate or other collateral) to secure the loan. This reduces the risk for the lender and typically results in more favorable loan terms, including lower interest rates.
• Unsecured Loans: Less common in the EB-5 context, unsecured loans do not require collateral but tend to have higher interest rates and more stringent approval Banks may be hesitant to offer unsecured loans for such high-risk ventures as the EB-5 program.

Advantages of Bank Loans:

• Lower Interest Rates: Secured bank loans often come with lower interest rates compared to loans from other sources.
• Clear Loan Terms: Bank loans are typically well-structured and include clearly defined repayment terms.

Disadvantages:

• Collateral Requirements: A secured loan requires the investor to pledge personal assets as collateral, which may pose a risk if the investment doesn’t perform as expected.
• Stricter Approval Criteria: Banks often require a high credit score and substantial documentation to approve loans for EB-5 investments.

➤ Loans from Regional Centers 

• Some EB-5 Regional Centers (which are entities authorized by USCIS to manage EB-5 projects) offer financing options to investors, allowing them to take out loans to meet the investment requirement.
• These loans can either be secured or unsecured, depending on the project and the center’s specific offerings.

Advantages of Regional Center Loans:

• Easier to Obtain: For many investors, securing a loan from a Regional Center may be easier than working with a bank, as these centers are familiar with the EB-5 process.
• Tailored for EB-5: Regional Centers often have specialized programs that cater specifically to EB-5 applicants, making the loan process more straightforward.

Disadvantages:

• Higher Interest Rates: Loans from Regional Centers may come with higher interest rates than bank loans.
• Risk of Project Failure: The loan is often secured by the project itself, meaning that if the project does not succeed, the investor may lose their capital.

➤ Loans from Friends and Family

• Many EB-5 investors choose to take out loans from friends or family members to meet the investment requirement.
• These loans are often informal and may not require collateral, making them a more flexible option for many investors. However, they still need to comply with the EB-5 program’s documentation requirements.

Advantages of Loans from Friends and Family:

• Flexible Terms: You may be able to negotiate the loan terms directly with family or friends, which can be more favorable than traditional lending institutions.
• No Collateral: Unsecured loans from family members typically don’t require you to pledge assets as collateral.
• Informal Nature: If the loan agreement isn’t well documented, it could create complications with USCIS when filing your EB-5 petition.