Can I Take Out a Loan for EB-5?
An EB-5 investor who wants to pursue a Green Card through the EB-5 investment program is supposed to use personal assets for their $900,000 Regional Center investment. It is possible for an EB-5 investor to take out a loan for their EB-5 investment, but the rules regarding such loans are stringent. Only secured loans are permissible, and the collateral must possess the same, if not greater, value than the loan amount. Keep in mind that all EB-5 investments are “at risk” during the project period, so it is possible to lose money. In the case of a loan, it is also possible to lose the collateral put up to secure the funds.
Because EB-5 assets must remain at risk, it is not possible to ensure that the collateral for a loan will eventually return to the EB-5 investor. Many investors use real estate to secure a loan. Since the collateral must have the same or greater value than the $900,000 EB-5 loan, only real estate worth that much money, or a combination of properties worth $900,000 or more, qualifies as security for the loan.
If using real estate as a collateral for the EB-5 loan, the interest of the EB-5 borrower requires perfecting. That means the mortgage loan is recorded by the government. Not only is the EB-5 investor the principal borrower for this loan, but the investor is considered personally liable for loan repayment. If the lender wants additional security for the loan, the EB-5 Regional Center investment is not eligible for this purpose, nor is any ownership share in the Regional Center.
EB-5 Loan Agreement
EB-5 loan agreements are not limited to lending institutions, per se. While it is possible for a private individual or business to make the loan, all parties must document that the funds were acquired legally. Such documentation is much simpler for a bank or other professional lender. Just as EB-5 investors who do not need loans must document the legitimate source of their funds, so must potential EB-5 lenders.
For private lenders, this includes whether the funds were obtained through salary, business income, investments or any other legitimate source. Necessary documentation may include pay stubs, income tax forms, employer income confirmation, business ownership proof, a business’ financial statements for the prior five years and how the business was acquired. The latter might involve starting the business from the ground up or a purchase of an established commercial entity. However, if the lender bought the business, the lender must prove that the source of the funds to make the purchase was legitimate. If the money is coming from investment funds, the lender must prove that the source of the funds from which they made the investment is legal. If the EB-5 investors parents make the loan, the parents must show how they obtained the funds. All of the requirements incumbent upon the EB-5 investor to provide the source of money they put up themselves now shifts to potential lenders. The sheer complexity of the process and the amount and sensitivity of information required may make some private lenders shy away from making EB-5 loan agreements.
EB-5 Loans and Immigration Attorneys
When it comes to securing a loan for the EB-5 program, every EB-5 investor has a unique set of circumstances. The documentation required is often daunting, but the EB-5 immigration attorney can advise the EB-5 investor on the documentation necessary for such loans. Without strict documentation, the US Citizenship and Immigration Services (USCIS) will not approve the use of the loan in the I-526 petition phase, the “Immigrant Petition by Alien Entrepreneur.” Immigration attorneys experienced in the EB-5 process know how to authenticate the source of all funds as well as all transfers.
Structure of the EB-5 loan is also crucial. The borrower must make sure the repayment comes after I-526 approval. The USCIS does not have a policy on the length of loans used by EB-5 investors. However, if the EB-5 loan agreement states that repayment is required before the date of the I-526 approval, the borrower must prepare to provide documentation proving that the source of the funds used to repay the loan are legitimate.
While the USCIS does not currently impose a loan length limit, some EB-5 investors are concerned that a long-term loan could run afoul of the at-risk rule. That is probably not an issue to worry about, because as long the loan is not guaranteed, it remains at risk.
LS NYRC Can Help
LS NYRC is one of the largest privately held real estate companies in the US, with over $6 billion in assets under management and development. To date, we have raised more than $400 million in EB-5 investments and created nearly 10,000 jobs across the country. Our development track record is strong and Standard & Poor’s and Moody’s give us an A+ and A1 rating, respectively.