EB-5 Investment Models: Regional Center Loans VS. Equity Investments



The EB-5 investor visa program requires a foreign EB-5 investor to make a qualifying investment into a qualified EB-5 investment project. This investment is called an ‘equity investment,’ and investing with a traditional loan into a project is prohibited. This is because when the EB-5 investor visa program was first created in 1990s, EB-5 investors would make an EB-5 investment with cash most of the time. The United States Citizenship and Immigration Services, or USCIS, eventually 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 loans with interest to EB-5 investors that are to be paid back within five years, or when they reach their EB-5 I-829 removal of conditions.

 

Understanding the Difference in EB-5 Loan and Equity Models is Important

The EB-5 loan model means EB-5 investors are a limited partner in a company that makes a loan to an intermediary, who invests the money into the project entity as EB-5 equity. In other words, it is similar to how an investor would take an equity position in a traditional debt fund. EB-5 investors are not making a traditional loan to the EB-5 Investor Regional Center. Instead, they are making an EB-5 equity investment into a partnership that the EB-5 Investor Regional Center creates. This new commercial entity (NCE) then establishes a loan to the job creating entity (JCE) which is ultimately the EB-5 investor project itself.

 

EB-5 Investor Visa Investment Equity Model

The EB-5 investor equity model means EB-5 investors are limited partners in an entity that makes a Preferred Equity investment in an intermediary who invests the EB-5 capital into the project entity as equity ownership. When a new EB-5 visa investment project has been created, the EB-5 visa investors usually form a limited partnership with the EB-5 Investment Regional Center. The capital that was utilized for the EB-5 investment will then be used to develop the EB-5 investor project.

 

Regardless of EB-5 investment model, proper due diligence is essential for any EB-5 investor. The experts at Dynaxe Capital are here to guide you through the process, thoroughly analyzing risk, and reviewing partnership agreements and exit strategies to help you and your family make the best EB-5 investment decision possible.

 

For more information, contact one of our EB-5 experts today!

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