How Do Loan Proceeds Work as EB-5 Investments?

To be eligible for permanent residency in the U.S., also known as a Green Card, EB-5 Immigrant Investor Program applicants must make considerable investments in a new commercial enterprise and stimulate economic growth.

Depending on the intended investment area, EB-5 investments may range from $800,000 in targeted employment areas (TEAs) to $1,050,000 in other areas. As large sums are involved, many EB-5 applicants are curious whether loan proceeds can be used to meet these minimum investment requirements.

In a nutshell, the answer is yes. Under certain conditions, EB-5 applicants can use loan proceeds to fund EB-5 investments. In this article, we will cover these conditions and explore how EB-5 investors can use loan proceeds to get their Green Cards.

Sources of Loans for EB-5 Investments

In general, four different sources of loans are eligible as an EB-5 investment:

1. Personal Loans

When funding EB-5 investments, some foreign investors may borrow money from friends and family. However, it is essential to remember that anyone who lends money to a potential EB-5 investor must also provide proof of the legitimate origin of the funds for the amount to be eligible as an EB-5 investment.

2. Institutional Loans

The most common source of loan proceeds for EB-5 investments is institutional loans. EB-5 applicants can borrow funds from banks or other financial institutions by providing collateral. However, when it comes to secured loans, there are a few key things to keep in mind:

Purpose Clause

The EB-5 visa application may be denied if the loan documentation includes a clause prohibiting using loan proceeds for EB-5 investment. Because of this, it is critical to ensure that the purpose clause includes an EB-5 investment.

‘At-Risk’ Investment

EB-5 investments are considered “at-risk,” which means that failure to comply with the program’s terms, such as creating the minimum number of American jobs or meeting other requirements, may result in an investment loss. The investor’s assets must be backed by such a secured loan and the source of the funds must be legal.

Requirements for an EB-5 Secured Loan

To be considered eligible for an EB-5 investment, a secured loan must meet several requirements, which include:

Personal Property

For the loan to be eligible, the investor’s assets or property must be used as collateral. An EB-5 investor can only secure an EB-5 loan using personal property. Stocks and other securities, gold and jewelry, real estate, and other assets fall under the EB-5 qualifying personal property (collateral) category. The investor must also be the primary borrower of the loan and accept full responsibility for its repayment.

Source of Funds

An EB-5 investor must show that the collateral used to secure an EB-5 loan was legally obtained and that the funds used to purchase the collateral were legitimately earned.

Key Case: Zhang v. USCIS

Zhang v. USCIS was a landmark case that addressed whether the proceeds of an unsecured loan could be considered a valid EB-5 investment. In the 2020 case, the Court of Appeals for the District of Columbia Circuit examined EB-5 applications submitted by two EB-5 investors who used the proceeds of unsecured loans from businesses under their control. The United States Citizenship and Immigration Services (USCIS) had initially denied their EB-5 applications because the funds were viewed as indebtedness rather than cash investments.

Cash vs. Indebtedness in EB-5 Investments

In the context of EB-5 applications, it is important to have a solid understanding of the difference between cash and indebtedness. When obtained lawfully, cash investments are straightforward and count toward the required investment. Prior to the Zhang v. USCIS case, loans could only be considered eligible if the EB-5 applicant’s personal assets were used to secure the debt. In other words, loans not secured by personal assets were ineligible for EB-5 investment.

Contrary to USCIS’s claim, the court ruled that loan proceeds (secured or unsecured) in an EB-5 business should be considered cash investments. This decision was based on the principle that once the loan proceeds are invested, they function as capital, effectively providing the EB-5 investor with the necessary funds while imposing no debt obligation on the EB-5 investment.

Find Out About Your Options

The Zhang v. USCIS decision and the following policy update indicate that even unsecured loan proceeds can be used to make the required investment under the EB-5 application as long as the funds are obtained legally. However, it is important to carefully review the loan agreement and provide evidence of lawful source of funds.

In order to complete these steps successfully, foreign investors should consider working with an experienced immigration attorney and a specialized EB-5 team.

EB5AN has helped more than 2,300 families from 60 countries relocate to the U.S. as lawful permanent residents. Our expert team has more than a decade of experience and offers clients first-rate, low-risk EB-5 regional center projects with a 100% USCIS project approval rate to date.

If you need information about how to apply for the EB-5 program or want our opinion on your options, feel free to book a call with our EB-5 team.