Repayment of EB-5 Investment Funds Depends on a Project’s Economic Feasibility

The EB-5 Immigrant Investor Program is one of the best ways for a foreign national to become a lawful permanent resident of the United States. In exchange for a qualifying EB-5 investment, an investor and their dependent family members may get Green Cards and access to countless new opportunities.

No EB-5 project is completely free of risk. There must be a chance of financial loss for your EB-5 investment to be eligible. So how does someone make an investment that fulfills EB-5 program criteria without losing those funds forever?

Most importantly, you shouldn’t put your funds in too much jeopardy. Your goal as an EB-5 applicant should be to minimize your immigration and financial risk.

Choosing the right project with the lowest financial risk possible is critical to getting all your EB-5 money back on time.

In this article, we’ll explain how you can minimize the threat to your investment as an EB-5 participant by selecting a financially feasible project.

Investors Can Get Their Money Back by Keeping Financial Risk Low

Participating in the EB-5 program typically requires a minimum investment amount of either $1,050,000 or $800,000—with the lower amount only applying to projects located in a targeted employment area (TEA), which is generally a rural or high-unemployment location.

For most people, this is a significant amount of money.

Naturally, many investors want to know how they can get repaid in full and on time for their EB-5 investment.

As we’ve touched on, investors must minimize their financial risk to get their money back. Financial risk is what endangers the chances an EB-5 applicant has of their investment capital being repaid.

To avoid as much financial risk as possible, it is essential that the borrower’s business activity be economically feasible and profitable.

Let’s take a closer look at some specific steps that stakeholders can follow to keep financial risks low.

Conduct Thorough Due Diligence

Informed decisions are better decisions. You can reduce financial risk by carefully evaluating potential EB-5 projects and their developers. You should be selective and do your research.

Take some time to study each project you’re interested in closely. You can also avoid endangering your investment by learning some of the basics of U.S. securities laws.

Before you invest in an EB-5 project, perform thorough due diligence that takes into account the following factors:

• The project’s structure.
• The project’s business plan.
• The construction timeline.
• Financial trajectories.
• The developer’s record of success.

Ensure Your Developer Is Qualified

Ask the project developer directly whether they can finish their project, become financially successful, and repay the funds you have invested.

Ideally, the developer you choose to work with should have the following characteristics:

• More than 20 years of experience completing EB-5 real estate projects successfully.
• More than 10 years of experience using EB-5 program financing.
• A perfect record of finishing every EB-5 project and repaying all previous investors.
• Already secured billions of dollars in financing and is in good standing.
• Independent from the regional center sponsoring the project so as to avoid a conflict of interest.

Confirm the Investment’s Financial Feasibility

In addition, you’ll want to investigate the following aspects of the investment and project to understand whether it’s financially feasible.

Invest in a Project That Has Robust and Diversified Funding

A low-risk EB-5 project does not rely exclusively on EB-5 investment capital. Instead, it has a variety of capital sources that cover project costs. The most important of these is an executed senior loan agreement from a national bank, something the project should have.

Be wary of EB-5 projects that derive all their funding from EB-5 investors. Since these projects don’t have access to other funding, they are unlikely to be financially feasible or create the required jobs. EB-5 investors face a significant risk of not getting their investments back under such arrangements.

Projects with less financial risk have already found enough capital to finish the project and keep it running after completion. Such projects will operate regardless of how many EB-5 investors support them. For such projects, funding from EB-5 applicants is simply a bonus—it costs less than other sources of capital and thus replaces the more expensive financing.

Confirm the Business Will Work in an Established and Profitable Field

Suppose you lend money to a new business. If that business is successful and profitable, then the odds of it being able to fully repay your loan by a defined date are very good.

However, if you lend money to a business operating in a newer field that is difficult to analyze, it will be harder to determine the likelihood of that business’s success and the loan’s repayment.

In addition, the project should be aimed at a significant, affluent, and growing part of the population. There should be direct comparables of other projects in the same industry to support their revenue projections.

Ensure Your Investment Has a Fixed Repayment Date and Escrow Policies

You’ll want to confirm that your loan has a fixed term that begins when you invest your funds. These funds should also be placed in a fully FDIC-insured escrow account until the United States Citizenship and Immigration Services (USCIS) receives your Form I-526E.

Look for Progress in Construction, Job Creation, and Profits

Project construction should be well underway by the time you invest. Steer clear of projects that have not started construction and have not received all required permits and approvals, as these run the risk of never even beginning in the first place.

Ideally, the EB-5 project will have also already created at least enough jobs to cover the job creation requirement for every participating EB-5 investor.

The project should also be receiving some revenue by the time you invest. Financial statements from the project’s managers should be available for your review and should demonstrate financial health with equity in excess of the total EB-5 investments.

Features such as these are direct evidence that a project is low risk and that you should be more likely to have your capital returned to you.

Insist on Transparency

Transparency from your EB-5 project partners will help you assess the feasibility and credibility of your investment.

It’s easier to do this evaluation with copies of the loan agreement and bank statements. Don’t rely exclusively on verbal assurances from a salesperson. The most reliable information is in writing.

Review all offering documents. The project sponsor should be willing to provide copies of the executed senior loan agreement and financial statements from the project development company and the guarantor company. Such documents can be legally shared—and they should be.

Ask lots of questions. An EB-5 regional center team member should respond to your questions fully and honestly without being evasive.

Also ask the regional center handling your investment to communicate with you regularly. This will help you monitor the progress of your project and its financial health.

Ask About Guaranties

No EB-5 project can give you a 100% guarantee of success. The program requires that investment funds be “at risk,” with the potential for loss as well as gain.

However, some EB-5 projects do offer safeguards that will decrease the chances of an investor losing their money.

Ask about the terms and limitations of any guaranties and be sure you understand them.

Ideally, your EB-5 loan will be secured by a separate, well-funded, diversified holding company. It should have enough equity to secure the loan for the full duration of the investment period. Be suspicious of projects that do not have repayment guaranties from separate guarantor companies that are independent from the project development company.

Avoid Government-Subsidized Industries

It’s especially important to avoid industries that are subsidized by the U.S. government.

When industries become subsidized, it means that the U.S. government has realized that these industries are not economically feasible in a normal, free-market economy. To keep these industries afloat, the government issues subsidies in the form of tax credits and other incentives.

Investments in such industries should be avoided. You would be supporting something that depends on government policy and funds to be feasible. You would not want to spend a great deal of money and have the security of your investment determined by the government continuing to provide these subsidies.

Meeting EB-5 Program Requirements Is Necessary but Insufficient

An EB-5 project can meet all requirements under the EB-5 program but still be a high-risk investment.

Approval from USCIS doesn’t automatically mean the project will be a safe investment for you. USCIS focuses on whether the project meets the job creation and at-risk requirements of the EB-5 program, not necessarily its financial feasibility.

This is why investors doing due diligence of their own, including consulting with EB-5 experts, is paramount.

Select a Project Located in a Targeted Employment Area

You can avoid unnecessary losses of time and money by choosing a project located in a rural TEA. In addition to requiring a lower investment amount, investing in a rural TEA will make your application eligible for priority processing.

It also means you may qualify for the 20% visa set-aside category, which is especially valuable if you are from a country like India or China, where the demand for EB-5 visas consistently exceeds supply in the unreserved category.

Consult With Experts

Most importantly, you’ll want to work with a professional EB-5 consulting firm. A team of experts can help you mitigate financial and other risks. They can help you assess a potential EB-5 project and ensure it complies with EB-5 requirements and aligns with your investment goals.

Also be sure to consult with an experienced immigration attorney who can help you navigate the legal challenges of immigration.

Invest in a Low-Risk, High-Value EB-5 Project

The EB-5 program is an excellent choice for foreign nationals who seek lawful permanent residence in the United States, especially if they follow the guidance above on lowering financial risk. Each EB-5 investor and their qualified family members can enjoy the personal and professional benefits that come with a U.S. Green Card.

As previously mentioned, be sure to collaborate with an established EB-5 consulting firm that has a track record of success. The EB-5 immigration process is too complex for the typical applicant to handle on their own.

Schedule a free call with EB5AN today to learn more about gaining lawful permanent residence in the United States under the EB-5 program.