What kind of deal structure is typical for EB-5 projects?

EB-5 funds are usually used in conjunction with other types of funding. The breakdown of the capital stack will depend on each project. We help projects with such matters all the time. Working with an EB-5 attorney early in the process is very beneficial.

Often, a typical structure for EB-5 projects is a long-term loan structure to a developer. You may consider marketing as a direct EB-5 option, but in this case, it is easier to market to potential EB-5 investors if the business is located in a designated Targeted Employment Area or rural area to qualify for a lower investment requirement of $500,000 (rather than $1 million). Also, a minimum 10 full-time jobs (at least 35 hours a week) must be created per each EB-5 investor. Another option is to affiliate with an existing USCIS designated regional center in your area where both direct and indirect/induced jobs may be counted and EB-5 investors qualify for the lower investment threshold of $500,000, assuming the regional center EB-5 program is extended beyond Dec. 9, 2016. Generally, with both options, EB-5 investors are limited partners and have no say in the active management of the business entity.

Yes, EB-5 investors could be a possible alternative to raise $5 million. Typically, you would want to get a determination that your project is located in a Targeted Economic Area (TEA), as it is easier to raise funds at the $500,000 per investor level rather than at the $1 million. In terms of the unknown investors, typically they are limited partners so they do not have any authority in terms of running your enterprise. You have to create 10 jobs for each investor. It may be easier for you to place your project under an existing regional center that will have both experience in structuring the deal as well as marketing it overseas.

The general trend in the market for EB-5 financing is that EB-5 investments are used as mezzanine financing, with a senior lender above and equity below. For practical purposes, pure equity deals are difficult to place. Those seeking EB-5 investment opportunities want to see at least one senior funding source in the mix. The other issue to address with a $5 million deal is cost and the ability to place a relatively small deal. While there is a desire expressed in Washington that EB-5 be used in rural areas, high unemployment areas and for industrial development, most projects tend to be in the hotel, restaurant and infrastructure areas. There are certainly other types of deals out there, but one should take the time to research the temperature of EB-5 regional centers in your area to see if a project such as yours would be of interest.

Often a limited partnership if the EB-5 investors will not be involved in the policy decisions.

There are two basic options: First, if the foreign national invests $1 million (or $500,000 if in a Targeted Employment Area/high unemployment or rural area) and creates 10 new full-time jobs, that would be a basis to apply for a green card. Second, if the regional center program is extended beyond Dec. 9, 2016, then if the investment creates 10 direct or indirect jobs, this would be a basis to file for a green card. This requires a more elaborate structure, but one can affiliate with a regional center and that often increases the amount that can be raised.

It all depends on what you plan to do with the $5 million. Does it involve the hiring of new employees? If so, how many? Or perhaps the money will be spent on building new facilities? Generally, you would approach a regional center that would raise the funds from EB-5 investors for your project. With that said, there are numerous ways for you to structure your deal with a regional center depending on the needs of your project.

EB-5 deals typically have a loan structure, where EB-5 investors form a LP, which issues the loan to the developer. $5 million might be too small of a raise for EB-5, given all the compliance you would have to consider. But if you plan to start with $5 million and will have future expansion plans, then EB-5 maybe a good option.