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What role do banks play in financing an EB-5 project?

I heard that when selecting a regional center project, I should only invest in one which has funding from a bank in addition to EB-5 funding. Is this true? Should I only invest in a project which also has a bank as part of the capital stack? What role do banks play in financing an EB-5 project?

Answers

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    Julia Roussinova

    Immigration Attorney
    Answered on

    Not necessarily. However, as an investor, you would want to conduct due diligence of specific EB-5 projects and regional centers associated with the same and likely choose a project that has both non-EB funding and EB-5 funding in addition to a success rate of a regional center, stability and consistency of its past projects, its overall history, its management team, etc.

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    Salvatore Picataggio

    Immigration Attorney
    Answered on

    There is no USCIS requirement as to a capital structure (EB-5 versus non-EB-5 funding). Many investors like to see a larger percentage of non-EB-5 funding than others. This is a business decision at its core, best come to with the assistance of financial advisers.

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    John J Downey

    Immigration Attorney
    Answered on

    The same role any bank would play in any investment, EB-5 or regular investment. As an investor do you feel more secure when a bank is willing to invest also?

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    Oliver Huiyue Qiu

    Immigration Attorney
    Answered on

    It is one of those myths about EB-5 that is about time to be defused. To determine how safe a particular EB-5 deal is, many agents touted the involvement of a bank as evidence of such deal that passed the bank''s review as safe. However, this is misunderstanding. Unlike a commercial bank which makes a loan and gets collateral to hedge against the risk, an EB-5 investor is to "invest" and there is supposed to have no guarantee for the return of the investment. Therefore, a good deal from a bank''s perspective does not mean it is also good for EB-5 investors. To answer your question about a bank''s role in EB-5 deals, it is usually the provider of short-term and/or bridge loans, and under some circumstances it is the escrow account service provider.

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    Jinhee Wilde

    Immigration Attorney
    Answered on

    A significant bank''s financing of a project signals stability and viability of a project. If a project is not commercially viable, the bank usually will not lend. Further, the collateral that secures the loan and loan value to liability ration also must be acceptable for the bank to put up their money. Thus, as an investor, you may want to avoid a project that only has EB-5 investment or very little bank and developer''s money in it. Let them show you that they, too, have their skin in the game.

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    James Cai

    Immigration Attorney
    Answered on

    A bank usually funds 30-50 percent of the project, and the rest will be from investors (which also includes EB-5 investors). Yes, if there is a bank funding, it means it has passed some due diligence review by a bank and should be, in theory, a project which has passed better scrutiny.

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    Ying Lu

    Immigration Attorney
    Answered on

    In selecting a project, you do not need to pick one with the bank involvement. In some cases, when there is a bank loan, the bank may take the first lien which put the investors as the second lien holders. It really depends on the structure of a specific project; there is no uniform formula for a "good" project.

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    Sufen Hilf

    Immigration Attorney
    Answered on

    To choose an EB-5 project with partial financing from a bank/ a developer is because a bank usually conducts due diligence before investing. This will make the project more desirable (safer) compared with a project with only funds from EB-5 investors.

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    James Yang

    Immigration Attorney
    Answered on

    When evaluating an EB-5 project, the amount of bank financing in the capital stack of an investment is a factor for consideration. However, it is not necessarily true that having bank financing is good (or bad) for a project. Investors should take into account the proportion of funding from each source (e.g. bank, EB-5 investment, developer equity, state/federal tax credit, TIFs) as well as the seniority of each type of financing when evaluating the riskiness of a project. Further, financing of a project is merely one factor in the process of evaluating an EB-5 project. If necessary, the investor should consult with professionals in relevant fields, to assist in making the evaluation.

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    Fredrick W Voigtmann

    Immigration Attorney
    Answered on

    A bank''s participation in the capital stack may lead some to believe that the bank has thoroughly investigated and underwritten the EB-5 project. That may not necessarily be the case. It is always best to conduct your own due diligence and not assume that because a bank is participating in the financing of the project that it is safe for you to do so as well. In most cases, the bank will have a better position (higher priority) than the EB-5 investors. Most EB-5 projects have at least some bank financing and/or developer participation in the capital stack. Stay away from any EB-5 projects that are 100 percent financed by EB-5 money. Hire an EB-5 due diligence expert to give you financial advice and to check the bona fides of the project you are considering. Hire an experienced EB-5 immigration attorney who can advise you on the immigration aspects of the case and represent you in applying for U.S. immigration benefits.

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    Ian E Scott

    Immigration Attorney
    Answered on

    In an EB-5 project, a bank may play one role in the financing equation. An EB-5 investment is like any other investment (in terms of evaluating the risks) except that it gives the investor a green card. As such, the answer to whether bank financing is a good or bad thing really depends on the project. It is always a good idea for a project to have a good relationship with the bank such that if cash flow issues arise, they can get money quickly.

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    Vaughan de Kirby

    Immigration Attorney
    Answered on

    There is no specific requirement or guideline as to a bank being part of the capital stack. However, many investors believe that the bank underwriter has examined the viability of the project and use this as an indication of safety.

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    Robert Cornish

    Securities Attorney
    Answered on

    Banks play various roles in EB-5 projects. As a threshold matter, a project does not need to be funded completely with EB-5 funds to seek EB-5 treatment. In some instances, EB-5 funding is used as a supplement to existing financing. This would mean that a bank acting as a lender would likely have performed its own due diligence on the bona-fides of the deal and the likelihood of the money being repaid. Nonetheless, a bank''s due diligence is different from that of an investor''s own examination, given the investor''s specific goals and financial situation. And in the case of EB-5 investments, investors may well be subordinated in terms of payment priority to others. What this means is that you should hire someone to assist in your due diligence of the investment, which may include a review of bank documentations concerning their funding of the project. Bank funding alone, while favorable, may not be the proper differentiator for determining what investment meets your specific needs. Banks play other roles in EB-5 investments as well. A bank should be acting as an escrow agent for pending funds. A bank or other financial institution should also serve as custodian of the project''s invested assets in a fund or other vehicle.

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    Joanna Jiang

    Immigration Attorney
    Answered on

    To be honest, financing from a bank would be better, but not necessary. There are other capital stacks from PE, financial institutions and investment firms as well.

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