EB-5 Visa Blog

The EB-5 Loan Model and Visa Retrogression

Dillon Colucci

The most prevalent form of EB-5 financing is the EB-5 Loan Model. The EB-5 Loan Model is when EB-5 financing enters a project entity (also known as a job creating entity) as a loan (an “EB-5 loan”) from a pooled investment vehicle (the new commercial enterprise). For the most part, the requirements of the EB-5 program dictate the terms of the EB-5 loan and EB-5 developers often feel restricted by these requirements. The recent retrogression of the EB-5 visa category and predictions for future visa retrogression will only increase conflicts between EB-5 developer wants and the restrictions in the EB-5 program.

One major issue EB-5 developers have with EB-5 financing is the inability to exit an EB-5 loan in a timely manner. Generally, an EB-5 developer will prefer to exit an EB-5 loan as quickly as possible. However, this may be restricted due to the EB-5 requirements contained within 8 C.F.R. 216.6(c)(1)(i)-(iii). According to 8 C.F.R. 216.6(c)(1)(i)-(iii), an EB-5 investor’s investment must be “sustained” and “at risk” throughout the period of that EB-5 investor’s conditional permanent residency. Generally, EB-5 developers prefer to repay an EB-5 loan as early as possible. However, USCIS has not issued firm guidance on whether an EB-5 investor’s investment funds remain “at risk” if an EB-5 loan has been repaid to a new commercial enterprise prior to an EB-5 investor achieving unconditional permanent residency.

If an EB-5 loan is repaid to the new commercial enterprise prior to that EB-5 investor achieving unconditional permanent residency, USCIS may deem the EB-5 investor’s investment funds to no longer be “at risk” because they are merely sitting in a bank account of the new commercial enterprise. Additionally, the investment funds must be “sustained” throughout the period of an EB-5 investor’s conditional permanent residency. If visa retrogression occurs, the beginning of an EB-5 investor’s period of conditional permanent residency will be delayed, which in turn will delay the date upon which that EB-5 investor will achieve unconditional permanent residency.

Because an EB-5 loan must remain outstanding in order to satisfy the requirements of 8 C.F.R. 216.6(c)(1)(i)-(iii) for each EB-5 investor in a project, an EB-5 loan term will need to be increased to account for any delays due to visa retrogression. This will lengthen the timeframe of an EB-5 loan and restrict EB-5 developers from exiting an EB-5 loan in three to four years. However, EB-5 financing will likely remain attractive for EB-5 developers as the interest rates are much lower than traditional bank financing. Furthermore, the extension of an EB-5 Loan to accommodate visa retrogression is not anticipated to significantly lengthen the current standard 5-7 year term of an EB-5 loan. With proper EB-5 counsel, an EB-5 loan agreement can be structured to accommodate visa retrogression and help accommodate an EB-5 developer’s goals. 

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