Can an EB-5 Investment be Based on a Loan or Gift?

An EB-5 Visa is an investor visa that requires an entrepreneur to invest either $500,000 or $1,000,000 of capital in the in the United States to either start a business or purchase one.  The other significant requirement is that the investment must create 10 full-time jobs.  One question that often comes up about the investment is whether or not the money invested had to “belong” to the investor. That is, can an EB-5 investor rely on a gift or a loan to start their enterprise. This article summarizes the requirements in this area.

Can an EB-5 Investment rely on a Gift?

The clear answer here is yes.  That being said, the reason for the gift has to make sense. For example, gifts from immediate family members are quite plausible given the close connection. In addition, a gift that will be used for an EB-5 visa could come from a close friend and the close ties between the investor and the friend could be explained in the supporting documentation. The further removed the gift giver is though, the more chance that the examiner will question the legitimacy of the gift. There is no hard and fast rule here but one should use common sense to assess what a 3rd party reviewer would think about the reasons for the gift.

Can an EB-5 Investment rely on a Loan?

The short answer is yes but a loan is trickier than a gift for two reasons. First, the loan cannot be secured by assets from the business as the investment amount must be at risk. If the loan is secured by personal assets (such as your home), that is fine but you should be prepared to show the government a promissory note that lists the personal security and the personal security MUST secure the loan.  If the loan is from a business enterprise outside the U.S. that you are associated with, you should also be prepared to show board resolutions that the company has authorized the loan.

While USCIS permitted unsecured loans in the past, around 2 years ago, this practice was stopped and unsecured loans are not permitted.

The second reason that a loan could be problematic is that for an EB-5 direct investment a loan may make an examiner feel that the investor is too highly leveraged and would not be in a position to repay the loan given the demands of a start up. As such, you may encounter viability issues with a loan such that the examiner may conclude that you will be unable to create 10 full-time jobs.  This leverage issue will not exist if the investment is in a regional center but it will be imperative to show that you are personally able to pay off the loan.  Also, as your I-526 petition may take over a year to be adjudicated, you should be prepared to show any required loan payments during that period.

How does an EB-5 Gift or EB-5 Loan Impact Source of Funds?

Another key issue when looking at both gifts and loans is the EB-5 source of funds requirement.

An Investor must satisfy the government that the money comes from a “legitimate source” and that the money was “obtained through lawful means.” The key theme to meet this requirement is documentation. That is, where did the money come from? How was the money made? Who participated on making the profits? Dollar for dollar accounting is not required but in order to fulfill this requirement you must often provide:

  • Personal and business tax returns for five years that show you have made income to support your investment amount
  • Bank Statements
  • Financial Statements if business already exists (audited preferred)
  • Registration material for a business that shows it was a legitimate business
  • Documentation to support the source of the money (eg. if you sold property (home, stock, etc.) you would have to provide all of the relevant details related to the sale)
  • Copies of judgments or evidence of all pending government or other actions against you from any court

If the amount came from the sale of a home or personal property, the documents and money transfers related to the sale should be provided.  The source of funds requirements for EB-5 are extensive and often go far beyond what you will see in the regulations.

If the Money does not come from the Investor, but from a gift or loan, the EXACT SAME REQUIREMENT that applied to the investor now applies to the person who gave the money. As such, if a parent provided a gift, that parent would have to show documentation to show where they obtained the money (eg. tax returns). This can be a particularly difficult requirement given the gift or loan giver’s potential sensitivity to their personal information.

For more practical or legal advice contact Scott Legal, P.C.. We offer services in a number of business areas including, Immigration, New Business set up, Contract review and development and entrepreneurial support. Call 212-223-2964 or email iscott@legalservicesincorporated.com for a consultation.

Ian E. Scott is a Harvard Law School Graduate, lawyer and author of Law School Lowdown: Secrets of Success from the Application Process to Landing Your First Job. Mr. Scott worked as a corporate litigator in the law firm Cleary Gottlieb and currently runs his own law firm Scott Legal, P.C. specializing in Immigration Law & New Business set-up.

2 Comments

  1. jaydeep thakor July 7, 2016 5:44 am

    I have my uncle in US. so can he give me $500 000 gift to me? I live in India.
    can I invest that gift(money) to EB5? if yes, than what I have to do? how could I go for?

    Reply
    • IanScott July 8, 2016 2:43 am

      Thank you for contacting us. Yes a gift is fine for EB-5. I recommend setting up a one hour consultation to go over the EB-5 requirements. Please let me know if you would like to set something up.

      Kind regards,

      Reply

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