How Developers Can Benefit From EB-5 Capital

The EB-5 program was introduced in 1990 to generate foreign investment in the U.S. economy. The program grew rapidly, attracting foreign investors seeking U.S. Green Cards. Then, during the 2007–2009 recession, developers started turning to the EB-5 program as a source of project financing.

With banks shutting down during the recession and the housing crisis that followed, developers needed an alternative source of financing. EB-5 capital, which provides a more straightforward solution for developers facing difficulties securing loans from banks and other traditional sources, provided a solution. By the end of the recession, raising project funds from EB-5 investments had become popular among developers.

In this article, we’ll discuss EB-5 capital and how developers can benefit from it.

What Is EB-5 Capital?

EB-5 capital is the funds a foreign national invests in a U.S. business in exchange for a Green Card.

The EB-5 Immigrant Investor Program grants U.S. permanent residency to foreign individuals who can invest at least $1.05 million or $800,000 (in targeted employment areas) in the U.S. economy and create at least 10 full-time jobs for Americans. This program is administered by the United States Citizenship and Immigration Services (USCIS).

An EB-5 applicant can invest directly in a new commercial enterprise (NCE) or through a USCIS-approved regional center. The regional center pools funds from multiple EB-5 investors and invests them in a qualifying EB-5 project.

Project developers often partner with regional centers to receive financing from pools of EB-5 funds for large-scale projects at low risk. On the investment side, EB-5 investors prefer large-scale development projects because investing in them makes it easier to meet the job creation requirement for their Green Cards. This is because both indirect and induced job creation count toward meeting the job creation requirement for regional center-sponsored EB-5 investments.

Benefits of EB-5 Capital for Developers

High interest rates make securing funding from traditional sources difficult and significantly increase project costs. Limited access to capital due to these high interest rates and increasing prices has made EB-5 capital, a lower-cost alternative, highly sought after among developers.

We’ll explore the benefits of EB-5 capital for developers in more detail in the sections below.

Inexpensive Alternative Financing

The primary goal of EB-5 investors is to obtain U.S. permanent resident status—financial gain is secondary. Hence, EB-5 investors generally accept lower interest rates than traditional lenders. In many cases, developers only have to pay dividends on EB-5 funding once the project is successful.

This dynamic gives developers access to low-cost capital, significantly reducing the overall cost of project development. In essence, it provides developers with the necessary capital to finance large-scale development projects that might be challenging to finance with traditional debt due to ever-increasing interest rates.

More Flexibility

While EB-5 capital provides lower-cost funding, the difference between EB-5 capital costs and traditional debt is not always significant. Sometimes, the EB-5 capital interest rate is just 1% or 2% lower. However, EB-5 capital has fewer restrictions and covenants, making it more attractive for developers.

Traditional lenders, such as banks and other financial institutions, typically require that developers have a qualifying credit score and provide collateral. The process of obtaining funding from these institutions is often lengthy and complex, with numerous bottlenecks. Accessing EB-5 capital, on the other hand, is more straightforward and does not always require collateral.

Additionally, EB-5 capital provides longer-term financing. Depending on the investment structure, EB-5 funds can remain invested in a project for a long time. This gives developers sufficient time to stabilize and mature their projects while benefiting from cheaper financing.

Increased Funding Potential

The EB-5 Regional Center Program allows multiple investors to pool funds (at least $800,000 each) to form a new commercial enterprise and invest in a job-creating entity (JCE). The availability of such large pools of funds makes it easier for developers to access significant financing for large-scale projects.

Developers whose projects are located within targeted employment areas (TEAs) benefit most from regional center financing, as most EB-5 investors prefer TEA projects.

EB-5 investors’ preference for these types of projects results from the “set-aside” reserved visa quota introduced by the EB-5 Reform and Integrity Act (RIA) 2022. The “set-aside” visa provision reserves 32% of the annual EB-5 visa allocation for three TEA categories: rural TEA, high-unemployment or urban TEA, and select infrastructure projects.

These projects also benefit from a lowered investment amount. Rural TEA investors enjoy priority processing from USCIS, making these investments more attractive to foreign investors looking for a faster and less expensive way to obtain U.S. permanent residency. This provides a larger pool of EB-5 capital for projects in these locations.

Improved Ability to Attract Capital Investment

Securing EB-5 capital often enhances a developer’s ability to secure funding from senior lenders. Most financial institutions require developers to have significant equity investments in their projects, and many of them view EB-5 capital as equity in a project’s capital stack.

With EB-5 capital, developers will not only be able to keep their projects afloat, but they’ll also increase their ability to attract additional capital investment from senior lenders. This means that it enhances the financial viability of the project and its attractiveness to potential investors.

Variety of Structures

Unlike traditional financing with strict requirements and a fixed structure, EB-5 capital can have a variety of structures. The flexibility of EB-5 financing allows it to be tailored to meet the unique needs of diverse projects.

EB-5 capital can be structured as preferred equity, mezzanine financing, or senior debt. This adaptability is highly beneficial to developers seeking to maximize the efficiency and profitability of their project’s financial structure.

There are also no predefined caps for the amount of capital a developer can raise through EB-5 financing, provided each investor meets the job creation requirement.

EB5AN Can Help You Access EB-5 Capital

EB-5 capital provides easier access to funds for developers seeking project financing. Developers can benefit from the pool of EB-5 investor funds offered by regional centers by developing projects within TEAs. The low-cost capital debt offered by EB-5 funding can significantly reduce your overall project costs while boosting the local economy through job creation.

If you’re considering seeking EB-5 capital for your project, EB5AN can help you. We operate several regional centers nationwide and assist our clients in selecting first-rate, low-risk EB-5 projects. We can help analyze your project and advise you on how to structure it to qualify for EB-5 funding.

For more information about EB-5 capital and how to access EB-5 funding for your project, book a free one-on-one consultation with our expert team today.