I invested in a project which has an approved I-526. The project utilized private financing (bridge financing) for some of the total capital raised and this private money is now being replaced with EB-5 money. Will there be issues in regards to the private financing/bridge financing? What concerns are there in terms of jobs created using private money which is now being replaced with EB-5 capital?
The I-526 petition may clearly show through the business plan that EB-5 funding was contemplated to replace traditional funding and the EB-5 funding was committed to the project before construction was completed. Under these circumstances, the jobs created before the EB-5 funding can be counted.
Generally, there should be no issues with an EB-5 project that initially used bridge financing. Interim, temporary or bridge financing (in the form of either debt or equity) prior to the receipt of EB-5 capital is acceptable.
Excellent question. There may be issues as a result of the bridge financing. USCIS does not allow EB-5 funds to be used solely to pay down debt or redeem equity. However, due to the time delays involved in EB-5, USCIS will allow the principals of a project to secure temporary bridge funds (either debt or equity) in order to maintain the feasibility or momentum of a project. The distinction is reliant on the facts and circumstances surrounding the project and how well the attorneys for the project documented why the bridge financing was secured. You need to have an EB-5 proficient attorney review the offering documents to accurately answer your question.
USCIS has allowed bridge financing to be used, but the non-EB-5 funding should be obtained with the understanding that EB-5 money would be used to replace it (and not contemplated after the fact). The new commercial enterprise can still receive credit for job creation.
Others will comment about USCIS policy regarding bridge financing. I wanted to point out in my response that the use of EB-5 proceeds to take out bridge financing may be considered a material issue for securities law purposes, and accordingly, the best practice is to clearly disclose such use of funds in offering documents. In other words, the offering documents should say that funds raised from investors may be used to repay sponsor equity, other equity or another lender, as applicable, and as much detail about that repayment as is known when the EB-5 funds are raised.
If it was stated in the initial documents that bridge financing was intended, it should not be a problem.
