This article describes the standard EB-5 loan process when done through a regional center. We’ll also explain how a typical EB-5 loan agreement is structured.

Loan agreements are a critical factor in the EB-5 program. They protect investors and the project by allowing all parties to agree on the loan structure and terms.

Most EB-5 applicants invest via the regional center program. This means that a regional center will handle most of the investment process on behalf of the applicant.

Unfortunately, regional centers sometimes don’t scrutinize loan agreements as well as they should. It’s, therefore, critical for investors to understand EB-5 loan agreements and structures to identify any risks they might be exposed to.

In this article, we describe the standard process of an EB-5 loan facilitated by a regional center. We also delve into the structure of a typical EB-5 loan agreement.

How EB-5 Loans Work

Before we explain how to structure an EB-5 loan document, it’s crucial to understand how the EB-5 loan process works.

Most EB-5 investors choose to invest via a regional center. The regional center will:

• Manage the investor’s funds for them
• Provide a development project and new commercial enterprise (NCE) for the funds to be invested in. The NCE is essentially the investment fund that will receive the EB-5 capital and then disburse it to the EB-5 project in question.
• Handle the day-to-day management of the NCE

If you’re investing via a regional center, transferring investment funds typically follows this process:

Step 1: Regional center secures investment

The regional center will work with marketers and other agents to attract and secure foreign investors for the EB-5 project. An experienced and legitimate regional center will also:

• Conduct due diligence on the project and investors
• Ensure that the loan complies with:
  • The EB-5 program
  • U.S. securities laws
  • The laws of investors’ countries of origin

Step 2: Investors send funds

Each EB-5 investor will invest $1,050,000 in the NCE. This is a fixed sum required under the EB-5 program. The required amount decreases to $800,000 if the EB-5 project is in a targeted employment area (TEA). A TEA is a rural area with a small population or an area with a high unemployment rate.

The funds are then placed into escrow until they are released to the borrower—which is the job-creating entity (JCE)–in other words, the EB-5 project. The investor will also usually be asked to pay a subscription fee.

Submitting Form I-526E is an immigrant’s first step in applying for permanent residence under the EB-5 program. It can only be submitted once they’ve invested in an NCE.

Step 3: Regional center pays loan to JCE

The regional center, or a separate lending company, will use the combined EB-5 investment funds to lend money to the JCE. The JCE accesses these funds as necessary, according to the project plan.

The regional center, NCE, and JCE agree on the terms of the loan, including the:

• Maturity date
• Interest rate
• Prepayment restrictions or requirements

These agreements are detailed in:

• The loan agreement
• A promissory note
• A loan security document
• Other documents discussed in the sections below

The JCE may grant the NCE a security interest in its assets as part of these agreements. It might also offer a guaranty of completion or repayment in the event of certain circumstances—for example, if an investor’s I-526E Petition is denied. These must also be reflected in the loan agreement.

Step 4: Project is executed and loans are repaid

If necessary, the JCE will obtain additional short-term loans to start the project before the EB-5 investment is disbursed.

This means repayment of the EB-5 investment may be subordinated to paying the project’s other senior lenders. Details of this process and its requirements will be outlined in an intercreditor agreement.

The JCE will complete the EB-5 project and repay the investment loan amount upon maturity using revenue from:

• Operations
• The sale of the business
• Other sources

Structuring an EB-5 Loan Agreement

The purpose of the loan agreement is to finalize terms between the regional center and NCE, the investor, and the JCE. When entering into a loan agreement, investors must consider whether:

• The JCE will create the 10 full-time jobs required under the EB-5 program
• The JCE’s operations will provide enough revenue to repay the loan amount upon maturity and cover any interest agreed upon throughout the loan term

Additionally, the JCE must be able to provide the investor with any financial documents required by United States Citizenship and Immigration Services (USCIS) to approve their permanent residence status.

JCE concerns

The JCE will have its own concerns when entering into a loan agreement. For example, the terms of the loan must not restrict the JCE’s ability to run the business. It must also be consistent with the terms agreed upon with other financing partners and senior lenders.

In addition, the JCE may wish to introduce a materiality threshold to account for unexpected events during construction or operations, and might request a grace period in case of a default.

Key components of the loan agreement

The loan agreement must contain the following key provisions:

✅ Definition of key terms

The first section of the loan agreement will define any terms repeated throughout the agreement and ancillary documents. These terms are generally capitalized throughout the documents.

✅ The borrowing terms

The second section of the agreement will detail the borrowing terms, including:

• The loan amount and its duration, as well as the procedure for disbursement
• The terms for repaying the principal and accrued interest on a monthly, quarterly, or annual basis
• Any provisions that allow the JCE to exercise an extension in exchange for an increased interest rate or other extension fee
• The origination fee, which covers the cost of processing the loan.

This section primarily discusses how the EB-5 investment amount will be released from escrow. In cases where a regional center has sought out multiple investors, these disbursements may occur over a period of time, based on specific milestones.

To protect the interests of the EB-5 investors, regional centers must negotiate a binding agreement that dictates how the JCE accesses the loan amount as agreed. This is crucial for the lending parties because:

• The regional center will have incurred substantial costs to raise the investment funds
• Investors rely on the JCE to use the loan to create the 10 full-time jobs required by the EB-5 program

✅ Conditions for closing

The third section of the loan agreement outlines the conditions for closing. These are the initial requirements that must be met before the first disbursement of the loan, as well as any conditions applying to subsequent advances. These conditions protect the NCE and EB-5 investors, and the JCE must meet them to draw funds from the loan.

Conditions for closing may include the requirement that the JCE produce any statements related to its business and its capital stack, such as:

• Corporate authorization certificates
• Ancillary loan documents, including intercreditor and subordination agreements
• Proof that the JCE has secured any necessary funding from other sources to commence the project before drawing on the loan amount. These other sources of funding may include government grants or senior loans

The JCE must also provide due diligence documents regarding the project. Examples include:

• Lien and title searches, in the case of a real estate development
• Proof that any security interests are protected against claims by third parties

The regional center acting on behalf of the NCE must thoroughly review these documents to protect the interests of the NCE and its investors before the loan is disbursed to the JCE.

✅ Representations, warranties, and covenants

The loan agreement may contain representations and warranties made by the JCE to minimize risks for the NCE and its investors. These representations and warranties enable the lenders to perform due diligence on the borrower by gathering material information about its assets and operations, as well as monitoring its business throughout the term of the loan.

They also allow the lenders to hold the JCE liable if any information provided is proven to be false. The JCE must review this section of the document carefully and may, as mentioned, request the inclusion of materiality thresholds and other agreements aimed at mitigating risks to safeguard its interests.

Similarly, the loan agreement may also include covenants to protect the investment and the lenders. These require the JCE to fulfill specific conditions or refrain from taking certain actions. As with representations and warranties, the JCE will likely seek to limit interference in its business. At the same time, the regional center is obligated to act in the best interests of the EB-5 investors by monitoring operations and ensuring the loan is used according to the agreed-upon terms.

⚠️ A breach of covenant triggers a default on the loan, so the parties involved in the agreement must ensure they understand and agree with these terms.

The following two types of covenants are typically included in EB-5 loan agreements:

• Affirmative covenants obligate the JCE to:
  • Provide unaudited financial statements to notify the lenders of any material changes to the business
  • Pay taxes and maintain insurance as necessary
  • Satisfy the job creation and other requirements of the EB-5 program
  • Disclose financial information, like net worth, leverage ratio, and other pertinent details.
• Negative covenants prohibit the borrower from taking certain actions without the written agreement of the lenders. These may include:
• Selling assets
• Obtaining additional loans or other forms of debt, or entering into material agreements
• Changing the business plan or the scope of the project

✅ Defaults

The loan agreement must also outline the circumstances under which the loan will default. These conditions include nonpayment or a breach of covenant.

In such instances, the lenders are allowed to take action to protect the investment amount agreed upon. If the NCE is subordinate to a senior lender, the regional center’s options to remedy the situation may be limited. However, potential remedies include accelerating repayment of the loan and pursuing guarantors or security interests as outlined in the loan agreement.

Other Considerations for EB-5 Investors and Regional Centers

In addition to the loan agreement itself and the provisions outlined above, EB-5 loan documents often include:

• A promissory note signed by the borrower
• Security documents covering any assets to be recouped in the event of a default
• A construction draw schedule to determine when disbursements will be made
• Guaranties
• Any subordination or intercreditor agreements applicable if the project will draw on multiple sources of funding

EB-5 investors and regional centers should pay particular attention to how collateral is used to secure the loan. The perfection of securities is crucial, especially in a complex EB-5 scenario involving multiple lenders. Investors must therefore work with knowledgeable attorneys to ensure that assets are protected in accordance with U.S. laws.

Additional documents may be necessary to prove that the JCE owns these assets and that they’re secured against claims by a third party, for example, in the case of a property lien. Investors may also wish to review:

• Lien waivers from any contractors involved in the project
• Mortgage agreements
• Title searches
• An appraisal of the assets in question

Regional centers are experienced in preparing business plans, economic impact reports, and other documents required by USCIS to foster the successful adjudication of I-526 and I-829 petitions. However, loan agreements are often overlooked, despite their key role in protecting the interests of EB-5 immigrant investors and regional centers themselves.

Investors and regional centers must work with experienced brokers and attorneys to ensure these agreements meet the necessary standards. A well-crafted loan agreement will minimize EB-5 investment risk by securing the loan amount and obligating the JCE to meet the agreed-upon economic and job creation targets.

Useful resources

This article is aimed at people with a strong understanding of the EB-5 program. If you’re less knowledgeable, the following resources may be useful:

How to Obtain a Green Card Through the EB-5 Program
EB-5 Visa Program Overview
I-526 Petition Requirements for EB-5 Investors
What Is an I-829 Investor Petition?
EB-5 Visa Decisions & Requirements

Invest With Confidence With EB5AN

A good loan agreement is critical to investing in the EB-5 Immigrant Investor Program. However, understanding the intricacies is challenging, and some investors may find it overwhelming.

EB5AN can help. We’re a regional center operator covering more than 20 states. Our team has extensive experience in business strategy, investment evaluation, securities and tax law, as well as immigration law. We’ve helped hundreds of foreign nationals to successfully immigrate to the United States via the EB-5 program.

Book a free consultation to discover how we can assist you in securing a favorable loan agreement.