Can EB-5 Funds Be Used to Purchase a Business? Key Insights for Investors

The EB-5 Immigrant Investor Visa program provides a pathway to U.S. permanent residence through a significant investment in a job-creating enterprise. One common question for potential investors is whether EB-5 funds can be used to purchase an existing business. While this might seem like a straightforward option, there are critical nuances to consider.

At the core of the EB-5 program is the requirement that the investment leads to the creation of at least 10 full-time jobs for qualified U.S. workers. To ensure this, the entire EB-5 investment amount—$1,050,000 or $800,000 if the business is in a Targeted Employment Area (TEA)—must be directed to the entity responsible for creating those jobs. This entity is known as the New Commercial Enterprise (NCE).

Funds cannot be diverted to unrelated purposes, such as administrative fees or payments to the current owner of the business. USCIS will closely scrutinize any use of funds to ensure they are fully available for job creation.

Using EB-5 funds to buy a business can raise issues if the investment does not directly benefit the job-creating entity. For instance:

• Purchasing Shares or Assets from an Owner: If funds are used solely to buy out an existing business owner, the payment benefits the owner rather than the NCE, which does not satisfy EB-5 requirements.
• Administrative or Professional Fees: Costs like legal or administrative fees must be paid separately from the EB-5 investment amount. These costs cannot count toward the minimum investment.

To comply with EB-5 rules, the investment must be structured so that the funds are committed to the NCE, which can then use the capital for job-creating activities, such as purchasing business assets or expanding operations.

The EB-5 program requires that the funds be invested in an NCE. Most businesses formed after November 29, 1990, qualify automatically as NCEs. However, businesses established before this date may need to undergo restructuring or reorganization to meet the criteria.

If you are considering purchasing a business that was formed before November 29, 1990, specific steps may be required to ensure compliance with EB-5 regulations.

Investors seeking to use EB-5 funds to purchase a business should follow these guidelines:

1. Direct the Investment to the NCE: Ensure that the funds are provided to the entity responsible for creating jobs, not to a former business owner or third party.
2. Document the Job-Creating Purpose: Clearly show how the funds will be used to create the required jobs.
3. Pay Fees Separately: Administrative, legal, or professional fees must be paid in addition to the EB-5 investment amount.
4. Consult Experts: Work with experienced immigration attorneys and financial advisors to structure the investment properly and avoid costly mistakes.

While EB-5 funds can be used in conjunction with purchasing a business, it is critical that the investment supports job creation directly and complies with USCIS regulations. Failure to meet these requirements could jeopardize your EB-5 application.

At Scott Legal, P.C., we specialize in EB-5 applications and investment strategies. If you’re considering the EB-5 program, we can help you navigate the process and ensure your investment meets all requirements. Contact us today to schedule a consultation or learn more through our free resources and webinars.