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How to Secure Direct EB-5 Investment: A Step-by-Step Guide for Business Leaders

For business leaders, EB-5 investments are a source of funding at below-market rates.

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EB-5 investment benefits the U.S. economy, areas in need of investment, business leaders and EB-5 investors alike. The main aim of the EB-5 program is to create jobs for U.S. workers through foreign investment. In exchange, EB-5 investors qualify for U.S. permanent residency and U.S. citizenship if they so desire. For business leaders, EB-5 investments are a source of funding at below-market rates.

Following the sunset of the regional center program on June 30, 2021, only direct EB-5 investment is available. This simply means that each EB-5 investor must make a direct investment in a project or entity that will create 10 jobs because of that investment. To access this source of capital for your next project, follow these five steps.

Related: Is Regional Center EB-5 Funding the Right Investment for You?

1. Engage the right EB-5 professionals

Although the requirements of the EB-5 program seem quite simple, they are more complex than many people realize. You can try to secure EB-5 capital yourself, but relying on professional EB-5 partners vastly simplifies and speeds up the process. You may need to consult several legal professionals to ensure that you know all you need to about the immigration, tax and securities implications of using EB-5 capital. Other helpful EB-5 professionals include accountants, consultants and business plan writers.

2. Assess the project's suitability for direct EB-5 investment

The needs and characteristics of your project determine whether it is suitable for direct EB-5 investment. Each EB-5 investor's investment must create 10 new, full-time, salaried jobs for American workers for at least two years. Consequently, your project must be able to create 10 jobs per investor. Smaller projects or businesses are usually better suited to direct EB-5 investment because they require less capital and can accommodate a limited number of investors. Thus, it is also important to determine the percentage of project capital you need to source from EB-5 investment.

To ensure that investors' I-526 petitions are approved, your business plan must include a concrete, plausible plan that shows how the required jobs will be created. The business plan must conform to the requirements set out in the Matter of Ho, so work with a business plan writer with EB-5 experience.

To qualify for permanent U.S. residency, an EB-5 investor's investment must also remain invested and at risk until the investor has held conditional permanent residency for at least two years. In this context, "at risk" means that the investor can benefit from gains or experience losses — neither condition is guaranteed. If the investor fails to meet this requirement, he or she no longer qualifies for residency based on the EB-5 program, so the project must allow investors to meet this requirement.

Related: How to Build Trust With EB-5 Investors

3. Ensure that the project is structured to accept direct EB-5 investment

With regional center investments, which are not currently available, EB-5 capital is structured as either a loan to or equity in the new commercial enterprise (NCE). The NCE then either invests in or lends the capital to the job-creating entity (JCE). With direct EB-5 investments, the investor must directly invest in the entity that will create the jobs, and all investments must be equity investments.

4. Market the EB-5 project effectively

The first step in the marketing process is developing a market strategy specific to the target market. Potential investors in different parts of the world have different expectations when assessing an investment opportunity, so the marketing materials should meet those expectations. The marketing materials should include a website with renderings and videos that describe the project and printed materials such as brochures. Online and in-person seminars are also useful. Marketing materials should be available in the language spoken by the target audience, and the translations must be accurate to avoid any misrepresentations, which can have serious legal consequences.

Foreign migration agents are an equally valuable marketing tool. However, ensure that any agents you rely on comply with local and U.S. securities regulations and fully understand the project offering. As in the case of translations, misrepresentation can have legal repercussions.

5. Reduce financial and immigration risk for EB-5 investors

An investor's EB-5 investment must remain at risk, but this risk refers to the chance of gain or loss. Financial risk relates to risk associated with the return of the investment at the end of the investment term and in case of the I-526 petition being denied; immigration risk refers to risk related to securing a green card. Investors look for EB-5 projects with the lowest financial and immigration risk possible.

You can reduce financial risk and provide peace of mind by using an escrow structure to release EB-5 funds to the project. In this scenario, the investment funds are held in escrow and released to the JCE upon approval of the I-526. The return of funds in case of I-526 denial should be clearly set out in the project documents.

Having a clear plan for job creation reduces immigration risk. It is best to include a job cushion, which simply means taking on fewer investors than job-creation projections might allow. In other words, if your project could plausibly create 50 jobs, taking on five investors increases immigration risk because you are not guaranteed to create 50 jobs, or 10 jobs per investor. However, if you take on three investors, the projected job creation becomes 16.6 jobs per investor, thus adding a cushion. Finally, ensure that you track job creation and project expenses from the outset to ensure that the required evidence is available to investors when the time comes to complete the EB-5 permanent residency process.

Related: Direct EB-5 Capital: A Valuable Opportunity for Business Leaders

Because of the intricacies of EB-5 requirements, your first stop should be an experienced EB-5 immigration attorney, who will be able to advise you on the details of the program, the help you need and the steps involved in sourcing capital. Structure your EB-5 project in such a way that you and your EB-5 investors can achieve your goals while benefitting the U.S. economy, American workers and the local community.

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