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What Are Partial EB-5 Investments?

What Are Partial EB-5 Investments?

Since 1990, the EB-5 investment program has made it possible for foreign nationals to relocate to the United States by investing in qualifying businesses. Foreign nationals who make a successful EB-5 investment are given a green card and can even apply for citizenship after holding permanent resident status for five years. Of course, the EB-5 investment industry is not only good for investors—since each EB-5 investment must generate at least 10 jobs, the U.S. economy also benefits from this much-needed source of capital.

The EB-5 program is also popular because of the flexibility that it grants to investors: foreign nationals from any country can participate, and their family members are also entitled to receive permanent resident status. In addition, United States Citizenship and Immigration Services (USCIS) allows investors to use a wide variety of sources of funds to obtain EB-5 capital.

USCIS is also flexible regarding the way EB-5 investments are made. In some cases, foreign nationals are not required to provide all of the EB5 investment capital right away—instead, they can make what is known as a partial or installment investment.

How Partial Investments Work

A partial EB-5 investment occurs when a foreign national makes an initial investment and later provides the rest of the funds in installments. After providing the initial funds, the investor will be given a set period (usually one or two years) to contribute the rest of the EB-5 capital.

The investor must give the EB-5 project a promissory note with a pledged security interest in assets worth at least as much as the amount of capital that will be paid in installments. The EB-5 project that holds this promissory note will have an enforceable lien on the investor’s pledged asset(s). Therefore, if the investor fails to provide the needed capital within the agreed period, the EB-5 project will be able to liquidate the pledged asset(s) and receive the promised funds.

USCIS allows partial investments because they constitute an irrevocable commitment of the EB-5 funds. The USCIS Policy Manual states that EB-5 investors “must document the path of the funds to establish that the investment was made, or is actively in the process of being made, with the immigrant investor’s own funds.” In light of this policy, partial investments are considered as “actively in the process of being made.”

Still, USCIS carefully examines partial EB-5 investments to make sure that the pledged funds will indeed be provided within the approved period. Therefore, investors must document the terms of their partial investment in great detail when they file Form I-526 and submit other documents to USCIS. It is especially important to prove that the lien is enforceable by the promissory note holder—doing so indicates that the EB-5 investment funds have been irrevocably committed to the project.

A Hypothetical Example of a Partial EB-5 Investment

In practice, how could a foreign national make a partial EB-5 investment? Suppose that a potential investor only has $300,000 to invest. As of June 2021, the minimum EB5 investment amount for targeted employment area (TEA) projects is $500,000, so the investor would need an extra $200,000 to make an investment. However, he has the means to provide the $200,000 in installments. The investor also owns a liquid asset: a hotel property that has a market value of more than $200,000. Moreover, the investor controls 100% of the hotel’s equity.

Now, the investor can make an EB-5 investment of $300,000 and provide a promissory note for $200,000 with a pledged security interest in the hotel. Through the promissory note, the EB-5 project will have an enforceable lien on the hotel. Of course, an independent report will have to prove that the hotel property is worth at least $200,000.

The investor will be given a set period to pay the remaining $200,000 in installments. If he fails to do so, the EB-5 project will be able to enforce the lien against the hotel.

Clearly, the EB-5 industry’s regulations are reasonable and enable a wide variety of investors to participate in the program. Foreign nationals who may not be able to invest the minimum amount of $500,000 right away could still qualify to make a partial EB-5 investment. All potential EB-5 investors should work with an immigration attorney and EB-5 consultants, who can help them identify the best EB-5 projects.

EB5 Affiliate Network and Beshara Global Migration Law Firm presented a joint webinar explaining how to make a partial EB-5 investment. Download the presentation below or watch the webinar on YouTube to learn more about partial investments.