EB-5 Repayment: How to Improve Your Chances of Getting Your Money Back

The EB-5 program aims to promote foreign investment to stimulate economic growth and create jobs for American workers. One of the key differences between an EB-5 investment and a regular investment is that, in a regular investment, investors can withdraw their funds at will. For EB-5 investments, the United States Citizenship and Immigration Services (USCIS) requires that EB-5 funds remain “at risk” for a minimum of two years.

Some regional centers have taken advantage of this requirement to imply that there are no means of protecting investors’ funds in an EB-5 investment. Many EB-5 investors have been unable to recoup invested funds because of this. However, this doesn’t have to be the case.

While a regional center cannot directly guarantee EB-5 capital repayment, there are several ways in which investors can increase their chances of getting their money back.

In this article, we’ll discuss how to improve your chances of getting your money back in an EB-5 investment.

Understanding How EB-5 Investments Are Structured

EB-5 regional center investments are broadly structured as loans or equity. While the structure of an EB-5 investment does not impact project success or guarantee capital repayment, it can determine how fast an investor will get back their money.

We’ll look at each investment structure in detail below.

EB-5 Loan Investments

In the EB-5 loan model, a developer or intermediary funds manager borrows investors’ funds from the new commercial enterprise (NCE) to finance an approved EB-5 project. The loan must be repaid at a specific date known as a “maturity date.”

EB-5 loan investments typically come in two categories:

• Senior Loan: An EB-5 investment structured as a senior loan offers the lowest risk and lowest returns. It has the lowest interest rate but is the first to receive capital repayment. It also enjoys first-lien rights—meaning the right to possess and sell ownership to recoup investment—in case of a loan default or project failure.
• Mezzanine Loan: Second to senior loans, EB-5 mezzanine loans are higher risk than senior loans, as they receive their capital repayment after any senior loans, but offer higher returns. While riskier than senior loans, both senior and mezzanine loans are less risky than equity investments. Most EB-5 loan investments are structured as mezzanine loans.

EB-5 Equity Investments

In the EB-5 equity model, the NCE uses investors’ funds to buy ownership shares in an approved EB-5 project. The investment is paid back only after the project is sold or refinanced and all senior and mezzanine debts have been repaid.

EB-5 equity investments mostly come in two categories:

• Preferred Equity: Most EB-5 equity investments are preferred equity. This category offers higher returns and higher risks than EB-5 loan investments. Preferred equity capital is repaid before common equity but only after all loans are repaid.
• Common Equity: Although it offers the highest returns, common equity is the last to receive capital repayment. Thus, it has the most risk. EB-5 investments are rarely structured as common equity, as developers hold common equity for most projects.

EB-5 Repayment Process

Like other investment forms, an EB-5 offering should contain a clear exit strategy that outlines how investors will receive their money back at the end of the investment. Investors should also ensure the offering documents include an intercreditor agreement, as this will spell out the rights of investors should the project fail.

However, an exit strategy does not automatically guarantee investment repayment. Several other factors affect the EB-5 investment repayment process. These factors include the project’s completion and market conditions. Perhaps most notably, a project’s ability to repay investors’ capital largely depends on its financial health. A project that is already making profits before completion is more likely to repay its EB-5 investors.

If a project’s profitability depends on sales or rentals upon completion, the project may not turn in profits if market conditions do not align with the project’s completion. As a result, such a project may be unable to repay its investors.

Tips for Improving Your Chances of Getting Your Money Back

One of the requirements for an EB-5 Green Card is that your investment remains “at risk” for at least two years. This is why it’s impossible to eliminate risk from the EB-5 process completely. However, there are a few ways to reduce EB-5 investment risk and improve your chances of getting your money back. These include:

Work With an Expert Team

The EB-5 program is complex, and both the immigration and investment processes can be difficult to navigate on your own. Working with expert EB-5 professionals can help mitigate the immigration and financial risks of the EB-5 process.

If you’re investing through a regional center, the regional center will serve as the general partner of the NCE. Consequently, your choice of regional center will greatly impact your investment risks. Choosing a regional center requires thorough due diligence. Assess the regional center’s history, experience level, track record of I-526E and I-829 approvals, EB-5 project success rate, transparency, and USCIS compliance.

Other vital professionals you should work with include the following:

• Financial Advisor: Look for a financial advisor with extensive experience in EB-5 offerings. A financial advisor will help you analyze EB-5 offerings and financial records to identify potential financial and immigration risks and select the best project for your goals.
• Immigration Attorney: An experienced EB-5 immigration attorney can help you assess the EB-5 project to ensure it aligns with USCIS requirements for an EB-5 visa. An immigration attorney will also help you prepare and file Forms I-526E and I-829, along with all your legal source of funds documentation.

Monitor Project Progress

Many EB-5 investors fail to monitor their EB-5 project’s progress after receiving their conditional Green Cards. This is a mistake that can cost you your lawful permanent residence status and your investment capital.

The EB-5 Reform and Integrity Act (RIA) of 2022 encourages regional centers to issue monthly or quarterly update reports on project progress. You should demand these progress reports if the regional center fails to provide them on its own. Analyze the reports and monitor your project’s progress to ensure that its development follows the plan and timeline stipulated in your I-526E petition.

By doing this, you’ll notice discrepancies (if any) early enough to take necessary action to avoid losing money.

Look for Financial Protections

Regional center EB-5 offerings can contain specific financial protection measures for safeguarding investors’ funds. These are the safeguards you should look out for specifically:

• Escrow Agreement: The EB-5 offering should include an escrow agreement stipulating how and when the investor’s funds will be released to the developer. A third-party escrow account serves as a protective buffer for investors’ funds. It could be tied to, for instance, an investor’s I-526E approval. In such an agreement, your investment will only be released to the developer when USCIS approves your immigrant petition.
• I-526E Denial Refund Guaranty: No regional center can guarantee that USCIS will approve your Form I-526E. So, you should preferably choose an EB-5 offering that contains an I-526E denial refund guaranty. This is a document that guarantees that, should your I-526E application be denied, your funds would be returned to you. Review the guaranty terms before signing the offering documents.
• Defined Exit Strategy: Some regional centers provide ambiguous exit strategies to investors. Don’t fall for this. Ensure the exit strategy is well-defined. Ask questions if you don’t understand, and make sure the clarifications, as well as the exit strategy as a whole, are put in writing.
• Repayment Guaranty: A third-party repayment guaranty offers the best security for EB-5 investors’ funds. Ensure the EB-5 offering contains a repayment guaranty from a reputable, well-capitalized guarantor. Evaluate the guarantor’s relationship with the borrower, asset base, and loan repayment history to make sure that there are no conflicts of interest and that the guarantor can follow through on its commitments.

Look Out for Common EB-5 Project Pitfalls

While analyzing EB-5 offerings, look for issues that can spell future financial problems and project failure. Watch out for the following issues in particular:

• Underfunding: If a developer has not raised the required funds for a project or fails to secure a senior loan, it may be a sign that the project is too risky. A situation like this compounds the investment risk for EB-5 investors, as an underfunded project may not reach completion or create the required jobs within the stipulated time. As a result, the project may fail, and investors may lose their funds.
• Conflict of Interest: Some regional centers are vertically aligned, meaning the regional center and EB-5 project are controlled by the same people. While this may not be a problem in normal circumstances, a conflict of interest will arise if the project experiences a problem. Should this happen, the regional center and developer may work together at the expense of the EB-5 investor.
• Project Delays: A project still in the planning stage or experiencing construction delays is at higher risk than an ongoing project. Project delays may be an indicator of underfunding or mismanagement. Such a project may fail to create the required jobs, and you may lose your money and legal permanent residence status as a result.

Partner With EB5AN for a Low-Risk EB-5 Investment

No investment is without risks, and an EB-5 investment is no different. However, you can minimize your investment risks by partnering with regional centers that offer protective measures to secure your funds.

By partnering with a transparent regional center like EB5AN, you’ll improve your chances of getting your money back without compromising your Green Card. EB5AN has helped over 2,300 families from 60+ nationalities become lawful U.S. permanent residents through the EB-5 program.

To learn more about our low-risk EB-5 regional center projects, schedule a free one-on-one session with our EB-5 experts today.