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EB-5 Investment Models: Regional Centers VS. Equity Investments
The EB-5 visa program requires a foreign investor to make an investment in a qualified investment project, called an “equity investment.” Investing with a traditional loan is prohibited, as when the EB-5 investor visa program was first created in the 1990s, investors conducted the transaction in cash most of the time. The United States Citizenship and Immigration Services, or USCIS, finally had to make it clear that an EB-5 loan would not be treated as an investment, and the law was changed shortly thereafter. Alternatively, EB-5 Visa Regional Center (RC) investment projects are structured as interest-bearing collateral loans to investors that are repaid within five years, or when they reach the elimination of EB-5 I-829 conditions.
Understanding the Difference in EB-5 Loan and Equity Models
The loan model means that the EB-5 investor is a limited partner in a company that makes a loan to an intermediary, who invests the money in the project entity as EB-5 capital. In other words, it is similar to how an investor would take an equity position in a traditional debt fund. Investors do not make a traditional loan to the EB-5 Regional Investor Center. Instead, they make an EB-5 equity investment in a partnership that creates the EB-5 Regional Investor Center. This new business entity (NCE) establishes a loan to the job creation entity (JCE), which is ultimately the EB-5 investment project itself.
EB-5 Investor Visa Investment Equity Model
The EB-5 investor equity model means that the investor is a limited partner in an entity that makes a preferred equity investment in an intermediary who invests EB-5 equity in the project entity as equity ownership. When creating a new visa investment project, investors generally form a limited partnership with the EB-5 Regional Investment Center. The capital that was used for the investment will then be used to develop the EB-5 investor project.
Regardless of the direct or indirect EB-5 investment model, due diligence is essential for any EB-5 investor. Dynaxe Capital experts are here to guide you through the process, carefully analyzing risk and reviewing partnership agreements and exit strategies to help you and your family make the best investment decision possible.
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