The EB-5 program’s regulations do not require investors to make an equity investment. However, investors who want to fund an EB-5 project using a loan model need to consider several factors. According to 8 CFR § 204.6(e), a loan made to a new commercial enterprise (NCE) does not qualify as a valid EB-5 investment. In the case of regional center-sponsored projects, an NCE can make a loan to a project’s job-creating entity (JCE) because indirect jobs will count toward fulfilling the job creation criteria. For projects following the direct EB-5 investment model, the NCE could make a loan to a wholly owned subsidiary. Moreover, loaned funds constitute a valid source of EB-5 investment capital.
EB-5 investors who use loaned funds to finance their EB-5 projects need to trace the capital back to its source carefully in Form I-526, Immigrant Petition by Alien Investor. United States Citizenship and Immigration Services (USCIS) requires investors to show that the funds originated lawfully, so investors have to procure evidence regarding the loan terms, the personal assets used to secure the loan, and the lender. (Even though the Zhang v. USCIS court ruling set a precedent for using unsecured loans, it is much safer to use a secured loan).
For instance, an EB-5 investor will likely have to procure a capital source statement outlining the loan terms and identifying the lender and the collateral. Bank statements showing that the loaned funds were deposited and a copy of the loan agreement may also be necessary. To show that the collateral used to secure the loan was sourced lawfully, an investor’s I-526 petition should include evidence such as certificates of ownership and appraisals for the personal assets in question. If real estate was used to secure the loan, for instance, the EB-5 investor must prove that the property was purchased using lawful funds.