What are acceptable uses for EB-5 funds?

As a rule of thumb in EB-5, all EB-5 funds must be placed at risk and used for job creation. Excess cash reserves will generally not be allowed.

The rule is that an EB-5 investor must invest $500,000 in the business within two years of approval of your conditional green card. Setting aside $300,000 as cash reserves is not likely to meet the standard. The reserve amount appears to be unusually high considering that it represents almost 60 percent of the amount that needs to be invested.

Generally, the entire amount must be proven at risk and committed for job-creation purposes. A well-drafted comprehensive business plan must outline these issues. The investment amount also depends on whether your business will be in a targeted employment area to qualify for a lower $500,000 investment; otherwise, the minimum required is $1 million.

You will need to show the uses of the funds and that the required number of jobs will be created. Leaving so much of the investment as a reserve (not for the business activities or job creation) may be problematic.

There will be different requirements for the expenditure of the EB-5 funds depending on whether this is a direct or regional center EB-5 project. The business plan or economic report will detail the timeline for the commitment of funds and the nexus with the required job creation.

A reasonable amount of cash reserves is allowed, but the full amount of the capital must be at risk and available for job-creating purposes. In other words, if most businesses in your industry require $300,000 in cash reserves to properly function, then you could document that through a market study and make a strong argument that the full amount is available to the new commercial enterprise for job creation. I think it would be difficult to find a business industry that normally would have such a high level of cash reserve. More likely, you are going to have to show how the money is at risk and how it will be spent over the next two years to create the required full-time jobs. A good EB-5 business plan writer or business advisor can help you on this matter. Also, note that the required amount of capital normally is $1 million; $500,000 is for an investment in a targeted employment area (TEA).

You should be able to prove that you fully invested the $500,000 during the two-year conditional residence period.