On April 22, 2015, U.S. Citizenship and Immigration Services (USCIS) held an EB-5 Stakeholder Engagement to discuss various issues relating to the EB-5 Immigrant Investor Program.
Immigrant Investor Program Office (IPO) Deputy Chief’s Remarks included an important clarification relating to the use of loan proceeds as capital. The remarks confirm that proceeds from a loan may qualify as capital for EB-5 investments, only if the requirements placed upon indebtedness by the relevant regulation are satisfied. The regulation states that “indebtedness” must be secured by assets owned by the alien entrepreneur, as long as the alien entrepreneur is “personally and primarily liable”, and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. Moreover, the regulation also requires the submission of evidence of indebtedness showing that it is secured by assets of the petitioner, other than those of the new commercial enterprise, and for which the petitioner is personally and primarily liable.
This means that an EB-5 petitioner may be able to use loan proceeds as EB-5 capital, as long as he or she is personally and primarily liable for such loans. The EB-5 petitioner must be able to provide evidence that the loans are not secured by the new commercial enterprise, but that the loans are secured by the petitioner’s own assets for which he or she is personally and primarily responsible. Based on IPO Deputy Chief’s remarks, it appears that USCIS restricts the use of assets as collateral to the petitioner’s own assets, and not a third-party’s assets.
Notably, USCIS takes the position that the petitioner must show that the value of collateral is sufficient to secure the amount of indebtedness. In other words, a loan qualifies as “capital” for purposes of EB-5 only up to the value of the assets used as collateral. Further, USCIS states that a restriction on the use of proceeds contained in a loan agreement will be considered in determining whether the petitioner has demonstrated a lawful source of funds. If the capital invested is restricted to a purpose other than the EB-5 investment, USCIS may deem it to be “unlawful,” on the ground that it constitutes fraud on a loan application or question the credibility of the evidence in the immigration record. Accordingly, USCIS cautions against submitting documents that contain provisions restricting the use of the funds for EB-5 investment.
The manner in which an EB-5 investment is structured is very important. Because of the detailed and complex nature of the EB-5 visa application, it is not recommended that you pursue it without the close assistance of an experienced team of professionals.