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Using EB-5 Unsecured Loans to Finance EB-5 Investment

April 14th, 2021 Peter Bibler

EB-5 investors often ask if using an EB-5 unsecured loan is permitted under EB-5 regulations. Many investors have family and friends who want to help finance their EB-5 investment to obtain a US green card. However, gifting funds might not be the most tax efficient way. Before the Zhang decision, USCIS required any loan proceeds invested in a qualified EB-5 project to be secured by that investor’s personal assets. Now, the Zhang decision opens the door for using an EB-5 unsecured loan for your EB-5 investment. As the court stated, “The buyer’s source of cash – whether paycheck, gift, or loan – makes no legal or practical difference.” Cash is cash, provided it is lawfully sourced.

Learn if you qualify for EB-5 financing through Unity Lender LLC.

EB-5 Unsecured Loans as “Indebtedness” or “Cash” When Considering Lawful EB-5 Capital

The plaintiffs in the Zhang case received unsecured loans from their own businesses. USCIS denied their I-526 petitions because it viewed the loan proceeds not as cash investments but as “indebtedness” and required the loans to be secured by the petitioners’ own assets. The D.C. district court concluded that USCIS’s interpretation as erroneous because it was not consistent with the ordinary and natural meaning of cash. The court distinguished USCIS’s interpretation that cash obtained from a third-party loan and then invested in an EB-5 enterprise constituted indebtedness from a situation where the investor is indebted to the enterprise itself.  The definition of “capital,” at issue here, is defined in the EB-5 regulations as the asset actually being contributed to an EB-5 enterprise, not the means in which that asset was obtained. (Click here for more background.) The district court also held that USCIS was engaged in improper rule-making and did not follow proper procedure by adding additional requirements to the definition of capital.

Appellate Court Reaffirms Zhang v. USCIS: Loan Proceeds is Same as Cash

On October 27, 2020, the United States Court of Appeals for the District of Columbia upheld the lower court’s ruling from November 2018, holding that loan proceeds are equivalent to cash, and therefore, constitute capital under EB-5 rules, even if the loan proceeds were not secured by the investor’s assets. (Click here to read the court’s decision.)

The appellate court rejected USCIS’s policy of treating loan proceeds as “indebtedness” that much be secured by the investor’s personal assets. As far as the enterprise is concerned, whether or how the investor’s loan was secured makes no difference; it can deploy the cash either way, and it faces no exposure if the investor defaults on any obligation to a third-party lender.

Key Takeaways on Recent Webinar Discussing Using EB-5 Unsecured Loan Strategy

On March 18, 2021, EB-5 Marketplace held a webinar discussing the Zhang v. USCIS ruling. The panel featured Charles Kaufman, a securities lawyer at Lexcuity PC, Phuong Le, an immigration lawyer with KLD LLP and Joseph Barnett, an immigration lawyer at Wolfsdorf Rosenthal LLP. Here are the key takeaways:

  1. The Zhang decision laid framework to challenge arbitrary USCIS policy decisions. The EB-5 industry has witnessed USCIS making new rules and policy changes through stakeholder meetings, issuing Requests for Additional Evidence in individual petitioner cases, etc. without going through the proper rulemaking process with notice and comment period. More recently, USCIS announced a policy on redeployment.
Learn more about Behring’s legal action against DHS on the 2019 EB-5 Regulations
  1. USCIS must still be educated on the EB-5 unsecured loan. Although the appellate court’s decision is binding on USCIS, USCIS has not yet updated its policy manual. Adjudicators still need to be educated and trained on this new rule allowing an EB-5 investor to use an EB-5 unsecured loan. In the short term, it is possible for RFEs to be issued, and EB-5 investors should work closely with their immigration lawyers to document properly the lawful source of funds.
For more EB-5 information, please visit Behring’s EB-5 Resources Center. 
  1. Partial payments are permissible, and an EB-5 unsecured loan may be part of total strategy. The panelists discuss how the appellate court points out that an EB-5 eligibility applies also to any foreign investor who “is actively in the process of investing” EB-5 capital. The key is to establish a funding timeline to demonstrate when the rest of the capital will be invested in the EB-5 enterprise and to finalize investment before the I-526 petition is adjudicated.
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  1. Inter-family loans are now possible. Before the Zhang decision, families wanting to lend money to their children or grandchildren for EB-5 investment were advised that funds had to be a gift because USCIS’s wrongly required loans to be secured by the EB-5 investor’s own assets. Moreover, the child or grandchild is often a US resident, at least for purposes of US securities laws, which requires the child or grandchild to have a minimum net worth of $1 million in order to be an accredited investor under Regulation D. Recently the SEC has expanded the accredited investor definition, allowing a family office exemption. Potentially, the beneficiary, viz. the child or grandchild, of a family office with investments under management of $5 million or more, can be an accredited investor.

A New Opportunity to Fund Your EB-5 Investment: Unity Lender

Behring has launched Unity Lender LLC, EB-5 Industry’s first licensed lending company for qualified EB-5 investors. Unity Lender is a lending company licensed in California equipped to provide loans for alternative investments. It offers a solution to qualified EB-5 investors who might not have the immediate liquidity to fund their investment. For example, investors may have illiquid real estate investments or are waiting for ideal time to liquidate stocks or sell other assets.    Unity Lender will work with you and your immigration attorney to provide a loan package to comply with source of funds requirements.

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