Can You Use an EB-5 Loan to Fund Your Investment? Rules for Borrowed Capital, Collateral & Source of Funds

It is possible for petitioners to make their EB-5 investments with an EB-5 loan, but it can complicate the compliance issues around source of funds.

In order to successfully file an EB-5 petition, applicants must make a capital investment of at least $1,050,000 ($800,000 in a Targeted Employment Area) in a job-creating enterprise in the United States. EB-5 compliance rules dictate that the investor must prove this capital was obtained legally.

Some investors are high net-worth individuals (HNWI) who have the entire EB-5 investment amount available in cash, while others have to pool capital by borrowing from friends and family. If they have assets such as property or businesses, they could sell those assets in order to fund the investment. But some would rather not do that; here’s how it’s possible to use the equity in personal assets to secure EB-5 loan funds.

Can You Borrow Money for Your EB-5 Investment? Rules for Borrowed Capital

Because of the high minimum investment amounts involved, EB-5 loan capital is frequently sourced from more than one place. Investors can use their savings, sell assets, and borrow funds, either from individuals or financial institutions. If the investor feels it’s more advantageous to use an asset as collateral for an EB-5 loan rather than sell that asset to fund the EB-5 investment, they can do so. The choice of whether or not to obtain a loan for all or part of the required capital may come down to where the investor is from, the assets they have available to them, and the terms of the loan.

The USCIS Policy Manual outlines some of the requirements for investing with borrowed funds, including that “The immigrant investor is personally and primarily liable for the debt,” that the debt “is secured by assets the immigrant investor owns,” and that “the immigrant investor must have primary responsibility, under the loan documents, for repaying the debt.”

This means that, if you are the investor, it must be your debt, secured by your assets, and not by someone on your behalf. This is because USCIS wants to prevent petitioners from using funds obtained by illegal means. If someone gives you the funds for your EB-5 investment, you need to prove that they obtained those funds legally. Having another person put up collateral for your EB-5 loan could be a way to obscure the source, which is why there are strict rules for how you must prove that your borrowed capital was obtained lawfully.

EB-5 Loan Requirements: Personal Liability, Collateral and the At-Risk Rule

Another important rule is that you can’t use the assets of the New Commercial Enterprise (NCE) to secure the EB-5 loan. As Interim Decision #3359 states, “Loans obtained by a corporation, secured by assets of the corporation, do not constitute capital invested by a petitioner.”

A key component of EB-5 is that investments must be put at risk. There has to be a real chance of loss or gain. But if the NCE’s assets are used to secure the loan, this could constitute guaranteed repayment, which is forbidden in EB-5 compliance rules. The risk of losing the collateral asset is another reason why many opt against funding EB-5 with borrowed capital, and why some recommend not pursuing EB-5 unless one is able to accept potentially losing the entire investment amount.

“An EB-5 investor should be someone that can take the risk and carry that risk, not someone who is putting out their entire life savings on one program,” said Irina Rostova at a JTC webinar.

Another important EB-5 borrowed capital rule is that the invested capital must remain at risk for at least two years. If the capital was borrowed, any interest payments due during the sustainment period would be the responsibility of the EB-5 investor. If it isn’t possible to obtain a loan that involves a balloon payment once EB-5 capital is returned, borrowing funds may be costly.

Partial EB-5 Investment and Promissory Notes: Filing Before Full Funding

If an EB-5 investor doesn’t have the full amount available to them right now, it is possible to file an I-526/526E application after only some of the funds have been invested, and complete the investment at a later date. This is called a partial investment, and it could allow some investors to start the EB-5 process without unnecessary delays related to obtaining the remaining funds through a loan. However, doing this does come with some risk.

“A partial investment is allowed, but under very, very specific terms that USCIS has set out,” said Rostova. “You have to fully identify the source of the funds with which you will complete your investment.”

According to USCIS, “Capital can include the immigrant investor’s promise to pay (a promissory note), as long as the immigrant investor is personally and primarily liable for the promissory note debt and his or her assets adequately secure the note.”

There are additional restrictions for the use of a promissory note, including that assets securing the note must be seizable by a U.S. noteholder. If one makes a partial investment and the remaining funds are not invested before I-526 adjudication, or if their delay causes the minimum sustainment period to be violated, the application could be rejected.

“It’s actually not a very practical thing for a lot of them to do without putting their immigration application at risk,” said Rostova.

Partial investment could be an attractive option at times when the Regional Center Program is up for reauthorization, as making a partial investment could allow investors to file their petitions before grandfathering deadlines. That said, partial investment could invite greater scrutiny.

“The adjudication trend is to be very, very strict on partial cases,” said Carolyn Lee at another JTC event.

While partial investment and investments of borrowed capital are available, they must be carefully documented in order to pass the scrutiny of USCIS adjudicators.

EB-5 Source of Funds Documentation: What USCIS Requires

In order to verify that funds were obtained lawfully, USCIS has strict requirements for documentation that must accompany investor petitions. As Interim Decision #3359 states:

“A petitioner must present clear documentary evidence of the source of the funds that he invests. He must show that the funds are his own and that they were obtained through lawful means.”

Other decisions have rejected investor petitions because they did not provide enough evidence as to the lawful source of the funds.

“Mere assertions about the petitioner’s financial situation or work history, without supporting documentary evidence, are not sufficient to meet this requirement,” states Interim Decision #3362.

Regarding borrowed capital, the Policy Manual offers specific guidance:

“The immigrant investor must also demonstrate that his or her own collateral secures the indebtedness, and that the value of the collateral is sufficient to secure the amount of indebtedness that satisfies the immigrant investor’s minimum required investment amount.”

The documents required will depend on how the investor obtained the capital, but USCIS generally expects clear evidence that proves both ownership of the funds and their lawful source. The Policy Manual states that the petition must be accompanied by:

• Foreign business registration records;
• Tax returns filed by the petitioner and any relevant business entities within the past five years; and
• Other evidence relevant to the source of capital, which may include audited financial statements, property ownership documents, loan or mortgage agreements, promissory notes, security agreements, or other evidence of borrowing.

The chain of evidence should go back more than one step. For example, if you borrow $800,000 for your EB-5 petition, it is not enough to show only who lent you the money. The lender must be able to demonstrate that the funds were obtained lawfully, and you must show that the collateral used to secure the loan was also obtained legally. A detailed paper trail, including loan agreements, banking records and any required translations for non-English documents, is therefore crucial. Investors must be able to show where the funds came from, how they moved through each stage of the process, and how they ultimately reached the EB-5 project.

How JTC Supports EB-5 Investors with Compliance and Documentation

Investors have to provide a lot of documentation in EB-5. This includes not just source of funds documentation, but information on job creation and the path of funds as they are deployed to the project. JTC works with top Regional Centers to help them provide this information via our 24/7 online portal that lets investors see up-to-date information on the status of their investments and access the information they need, when they need it.

There are many compliance issues in EB-5, and working with an experienced fund administrator like JTC is the best way to ensure that both the Regional Center and its investors are following the rules, and that they can prove it to USCIS through proper documentation.

Learn more about JTC’s EB-5 services