SBA Loans combined with EB-5

By John Shen and Justin Blackhall

The EB-5 immigrant investor visa program was created by Congress for the purpose of creating jobs in underserved areas of the U.S. economy.

However, as the result of restrictions placed upon bank capital as well as the scarcity and high cost of other forms of private capital in recent years, EB-5 dollars have become a primary source of capital for commercial real estate developers, including those to build towering skyscrapers and residential condominiums in large metropolitan areas throughout the U.S. This development, together with sporadic high-profile cases of improper uses of EB-5 funds and an injection of partisan politics related to immigration issues, have negatively impacted the public’s perception of the EB-5 program. Some criticism of the EB-5 program is valid — particularly how an unfortunate amount of EB-5 capital designated for underserved areas has been funneled to large luxury projects in big cities — but EB-5 can still be a force for economic good.

What the industry needs is to ask itself the basic question: Which investment vehicle best fits the EB-5 program, not only at the micro level of sufficient job creation for each EB-5 investor, but also at the macro level, boosting underserved sectors of the U.S. economy in general? With respect to the macro question, government-sponsored loan programs fit the bill. Federal, state and local governments introduce and maintain targeted lending programs for the purpose of encouraging positive economic behavior, not purely for economic gain, as is the case with private financial institutions. Many of these government-sponsored loan programs have close to, if not identical, goals as those of the EB-5 program — job creation. This synergy offers some unique benefits that government-sponsored loan programs bring to the EB-5 industry.


The SBA 504 loan program is designed to create jobs and provide financing to small businesses (such as limited service hotels) for the purchase and/or construction of fixed assets consisting of owner-occupied commercial real estate.

Typically, the borrower in a SBA 504 loan transaction must contribute at least 10 percent, more often 20 percent, of the total project cost in the form of equity funding. A private lender typically lends 50 percent of the total project cost through a permanent loan that’s generally secured by a SBA 504 senior loan, which is a first lien on the borrower’s assets, and the SBA lends the remaining 40 percent through a SBA 504 subordinated loan, which is a loan secured by a subordinated second lien on the borrower’s assets.

The funds for the SBA 504 subordinated loan are raised through a monthly auction of bonds, which is 100 percent guaranteed by the U.S. government. By providing the SBA 504 subordinated loan, the SBA encourages private lenders to offer SBA 504 senior loans to small businesses in a first lien position at a palatable 50 percent loan to cost position, while providing the small business borrower with the total 80 to 90 percent financing needed to complete the project.

EB-5 funds may be used to fund capital other than the SBA 504 subordinated loan needed for the project, including all or some of the SBA 504 senior loan. Without the SBA 504 subordinated loan, private lenders would have difficulty closing these types of small business deals due to the significantly higher risk. With this special co-financing SBA 504 loan structure, the true winners are the qualified small business owners and the employees whose jobs would not have been created without the availability of the program.


The synergy between the EB-5 program and government-sponsored loan programs, particularly SBA loan programs, is built around job creation. The single most important requirement of the I-829 approval that grants permanent residency status to EB-5 investors is the fulfillment of the creation of 10 full-time jobs per investor.

Often the most basic measurement of the success of a government-sponsored loan program is also the creation of new jobs. This is so significant that certain government-sponsored loan programs, including the SBA 504 loan program, make job creation a requirement for each borrower. Currently, the SBA 504 loan program requires each borrower to create at least one full-time job for each $65,000 in loan proceeds provided by the SBA.


The success of any EB-5 project is initially determined by its EB-5 fundraising efficiency. How the project is structured to make the investment credible, safe and transparent to the targeted EB-5 investors is paramount.

Government engagement in an EB-5 project may add further underwriting scrutiny and other benefits EB-5 investors find attractive, but can vary significantly by loan program type, ranging from direct guaranty of a portion of the subject project financing to independent underwriting and processing, capital raising to co-fund deals or a combination of these. In the case of the SBA 504 loan program, first, the SBA processes and underwrites the loan. Then, the SBA issues a bond and raises funds for the second loan. Finally, the SBA guarantees the SBA 504 subordinated loan. Regardless of the exact engagement the government may have, the overall impact made by dedicated government resources to a particular loan program and ultimately the EB-5 project is valuable as it adds an additional layer of scrutiny and protection that EB-5 investors want to see.

Involving government-sponsored loan programs in an EB-5 project has the added benefit that a program likely has a long track record that EB-5 investors can review to gauge the likelihood of success based on prior project history. Compared to the EB-5 program started in 1990, many government-sponsored loan programs have more extensive records, often based on a cumulative loan volume of billions of dollars over the years, to which EB-5 investors can refer. U.S. federal, state or local endorsement, engagement and direct investment in the project can facilitate obtaining EB-5 investors’ confidence in the project and positively influence their decision to invest.


One good example of EB-5 projects utilizing government-sponsored loan programs is the Marshville youth campus, an Anderson Health Services project located in Marshville, North Carolina. Anderson’s campus is a psychiatric rehabilitation facility for troubled youth made possible and funded using the SBA 504 loan program and EB-5 funds.

The facility provides on-site, live-in, full-time psychiatric counseling services to youth between the age of 13 to 17, with the goal of providing effective treatment and transitioning all youth treated at the facility back to their families and communities. Prior to construction of the campus, the state of North Carolina was sending as many as 400 youth per year to out-of-state facilities due to a lack of available recourses in the state.

The total project cost for this project was $8 million, with $2 million in EB-5 funds invested in the first lien private loan. In addition to positive community impact of the Marshville campus, this project successfully achieved its job creation goal of 73 full-time jobs just halfway through the first year of operation, clearly demonstrating the positive impact that EB-5 funds can have not only through job creation but through serving society.

The significant synergy between the EB-5 program and government-sponsored loan programs is driven by the shared goals of servicing underserved areas of the U.S. economy and promoting job growth.

The marriage of the two creates a blueprint for both successful EB-5 investment for financiers and infusion of EB-5 funds into sectors of the U.S. economy where it is most needed and where it can do the most good. Raising EB-5 capital by leveraging government-sponsored loan programs, selecting high quality loan projects, and closing and servicing loans in a safe and stable way gives greater peace of mind to both EB-5 investors and the qualified project owners, which leads to overall EB-5 investment success.

John Shen

John Shen

John Shen is the CEO of American Lending Center LLC. He is a pioneer in the regional center industry, where he’s introduced EB-5 capital to U.S. government loan programs, such as the SBA 504 program. In October 2017, Shen won the “Coleman SBA 504 Lender of the Year Award,” the annual award for the best small business lenders. He founded American Lending Center LLC in 2009, which received the U.S. Citizenship and Immigration Services’ regional center designation in April 2010 and a California finance lender license in November 2010.


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