EB-5 investors have various funding options and strategies to explore when pursuing a U.S. green card through their investments.
Traditionally, they have funded their EB-5 investments through personal savings, the sale of assets, loans, gifts, inheritance, business earnings, stock market and investment accounts, or a combination of these sources. Recently, EB-5 Regional Centers, project developers, and third parties have also started offering partial funding.
There are several options available to EB-5 investors, who must select the most appropriate depending on their situation.
Personal Savings
Investors can use their personal savings or liquid assets to fund the EB-5 investment as the most straightforward method. They must demonstrate that they obtained the funds legally, which involves detailed documentation of the source of the funds.
Sale of Assets
Investors can liquidate their real estate assets, stocks, or other business holdings to fund the EB-5 investment. As in any asset category, they must provide proper sale documentation and proof of ownership.
Loans
Secured Loans
Investors can take out a loan secured by their assets, such as real estate, and must have personal liability for the repayment.
Unsecured Loans
While less common and more scrutinized, unsecured loans might be acceptable if documented, but they are typically more challenging to get approved. For a long time, the loans had to be collateralized. Today, USCIS accepts unsecured loans as qualifying investments in the EB-5 Immigrant Investor Program as a direct result of the Chang v. USCIS case. This case was pivotal in understanding what constitutes a qualifying investment under the EB-5 program. Traditionally, the investment funds had to be the investor capital, meaning they could not rely on loans secured by their assets. The ruling in Chang v. USCIS clarified the interpretation of capital under the EB-5 regulations, leading to more lenient guidelines on the source of investment funds. This case remains a reference point in EB-5 law, especially for cases involving loans as part of the investment.
Gifts
Investors can receive gifted funds from a family member, close relative, or others provided they are well-documented, such as a gift affidavit and proof that the donor obtained the gift legally. Although the EB-5 investor, as the recipient, is not required to repay the gift and is therefore not subject to the source of funds analysis, the donor may be subject to gift tax, depending on the tax regulations of their country of residence. Before moving forward with this option, donors should consult their accountant, auditor, or tax advisor.
Inheritance
Investors who receive funds through inheritance can use these for their EB-5 investment, provided they can document the inheritance and its legitimacy. In recent years, USCIS has become much more vigilant in this category. A few years ago, since the decedent was not present to provide the required documentation, they did not question the source of funds for inheritance. While the source of funds scrutiny on inheritance funds is not nearly as rigorous as the other methods mentioned above, today, USCIS demands the heirs to show evidence that the decedent could have accumulated the contents of the estate they bequeathed through legitimate means. The burden of proof is on the EB-5 investors using the inheritance to fund their EB-5 investment.
Business Earnings
Investors may use profits from their business ventures as the source of their EB-5 funds as long as they provide detailed financial records and tax returns to verify the legitimacy of these earnings. EB-5 investment funded by the business earnings can occur in many ways. The business could declare a dividend payment to the individual. Many times, business owners who do not want to receive dividends from their business to avoid double taxation – one at the corporate level and another at the personal level – choose to borrow from their business or pledge the shares they own in the business with a financial institution to borrow the required funds.
Stock Market and Investment Accounts
Investors can liquidate their investment portfolios, including stocks, bonds, or mutual funds, to generate the required capital. They must provide proof of ownership, sale transactions, and documentation on how they initially acquired these assets. Investors often combine the above methods to reach the required investment amount. This approach requires thorough documentation of each funding source.
Third-Party Financing
They may also use temporary loans or bridge financing to start the investment process, as long as they expect to use the other sources of funds for loan repayment once available.
Partial Investment
There is a growing trend of Regional Centers accepting partial investments for EB-5 applications, especially following the RIA of 2022, which reintroduced a set-aside visa category and alleviated concerns about retrogression for investors from countries like India and Vietnam. Many current investors in the U.S. on nonimmigrant visas are interested in the EB-5 program, but some lack the full required investment amount. Regional Centers aim to accommodate these investors by allowing partial funding at the time of application, enabling them to file their petitions with USCIS more quickly. However, it is crucial for immigration attorneys to carefully document the source of funds to avoid receiving Requests for Evidence (RFE) or Notices of Intent to Deny (NOID). Therefore, the partial investment option is valid for investors with assets that they can monetize through a collateralized loan or sale to finance the required capital and investment but are tied and not easily accessible. If they use the partial investment route to speed up the investment process and possess the source of their documentable assets, there should not be an issue.
Financing from EB-5 regional centers or project developers
Investors can partially fund an EB-5 investment by getting an unsecured loan from a Regional Center instead of a bank. Some Regional Centers offer financing options, allowing lower upfront payments, but this is less common and requires careful review. Regional Centers with extra funds from past projects may lend to new investors at high interest rates. They handle the source of these funds, which is important for investors to know. However, investors often have a misconception that they do not have to provide the source of funds on the funds they will use to top off their investment made through partial funding. Whether investors use the initial partial investment route or decide to borrow from the Regional Center for a couple of years, they must provide USCIS in their I-526E petition a complete source of funds analysis. As stated above, failing to do this can have significant ramifications, including denial of their petition.
There is also a misconception that investors can receive a condo as a return on their investment. This is illegal, as invested funds must be at risk, and claiming guaranteed returns through a condo is misleading. Investors should separate EB-5 investment decisions from real estate purchases since EB-5 focuses on job creation. It’s advised to consult licensed investment advisors to ensure informed choices.
Other important considerations
EB-5 investors should also engage in tax planning before making the EB-5 investment to minimize tax liabilities in both their home country and the U.S. As such, some investors reallocate or restructure their assets well in advance to simplify the documentation process and meet EB-5 requirements.
All funds used for the EB-5 capital and related expenses must be lawful, with comprehensive documentation for the source of their funds, including bank statements, tax returns, loan agreements, and any other relevant financial records to obtain USCIS approval.
It is vitally important for investors to conduct due diligence on the EB-5 projects or Regional Centers they are considering, including understanding the risks and potential returns. Moreover, each investor’s situation is unique, and consulting with experienced immigration attorneys, financial advisors, and tax professionals is highly recommended to navigate the complexities of the EB-5 investment process.
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