Last updated: Dec 01, 2022
The process of raising capital from EB-5 investors starts with ensuring that the project or venture is a good fit for EB-5 investment and is structured and planned appropriately. Businesses or project developers interested in seeking EB-5 investment should follow these basic steps:
Identify the Project Type
The location of the project or business determines how much capital can be raised from each EB-5 investor. Projects that are located in targeted employment areas are incentivized for investors: the minimum investment amount for each EB-5 investor in these areas is $800,000. For all other projects and locations, the minimum investment for each EB-5 investor is $1.05 million. While the higher investment amount is attractive for businesses raising capital, projects that qualify for the lower investment amount tend to be more appealing to investors and, as such, these projects tend to be more successful in the EB-5 market. What’s more, the EB-5 program sets aside visas for projects that are located in rural areas and high unemployment areas, which can fast track the process for investors.
Definitions of Targeted Employment Areas (TEA)
A targeted employment area is defined as an area that is either rural, or has experienced high unemployment.
The EB-5 program regulations define a rural area as any area other than an area within a metropolitan statistical area (MSA) or within a city or town that has a population of 20,000 or more. The former portion of this definition is important as many areas that may seem rural due to a low population may not be rural if they are considered part of a larger MSA.
A high unemployment area is defined as an area that has experienced an unemployment rate of at least 150% of the national average. The “area” can be a single census tract, or adjacent census tracts in which the new commercial enterprise is principally doing business.
There are various maps and tools published online that can verify a project’s location as a TEA. It is best to refer to these tools in the early due diligence process of setting up a project for an EB-5 capital raise.
Decide the Investment Path
The EB-5 program is actually two programs in one: investors can invest directly into a business (this is referred to as a “Direct EB-5” investment) or can invest in a project that is sponsored by a Regional Center.
Direct EB-5 projects can only accept investment from one EB-5 investor ($800,000-$1.05 million) and the new jobs must be created directly by the business into which the capital is invested. Direct jobs are synonymous with W-2 employees. The business is required to create 10 new, full-time W-2 jobs within two years. Full time is defined as 35 hours per week or more and contractor positions and/or positions created by affiliated entities do not count toward the minimum job creation requirement. As such, the Direct EB-5 avenue is well-suited for new businesses or businesses that are using EB-5 capital to expand, and that are operations-oriented.
Regional Center Projects
The Regional Center program is a separate program within the EB-5 visa category that allows projects to pool capital from multiple investors. This is a common model for large real estate, infrastructure, or manufacturing projects. Typically, the pooled capital from EB-5 investors fills a gap in the capital stack, enabling the project to move forward. The number of investors that can be pooled is determined by the projected job creation of the project. For example, if a project will create 500 jobs, the maximum number of EB-5 investors it could support would be 50 (500 jobs / 10 jobs per investor). Therefore, the project could raise $40 million from EB-5 investors if it is located in a TEA ($800,000 in capital investment per investor x 50 investors). In contrast to the Direct EB-5 model, Regional Center projects can count indirect and induced jobs, in addition to direct jobs.
EB-5 INVESTMENT ROUTES
Regional Center Program
- Investment Per Investor
- $800,000 (TEA)
$1,050,000 (Non TEA)
- $800,000 (TEA)
$1,050,000 (Non TEA)
- Number of Investors Per Project/Business
- Multiple, limited only by job creation
- Typical Businesses/Project Types
- Singular enterprises raising capital for startup or growth plans. Lower capital requirements.
- Larger projects with large capex or development budgets. Higher capital requirements.
- Minimum Job Creation Requirements per Investor
- 10 full time
- 10 full time
- Job Types
- Direct only
- Direct, indirect, and induced with a minimum of 10% being direct
- Supporting Documentation for Job Creation
- Credible business plan with research-backed projections and job creation timeline
- Economic impact analysis informed by a project budget and pro forma
Credible business plan that backs projections
- None required
- Project must be sponsored by a designated Regional Center
- Record Keeping and Reporting
- Managed by the company
- Managed by the Regional Center
Source Advisors & Associated Parties
Preparing a project for an EB-5 capital raise can be daunting, and successfully navigating the nuances of the program’s legislation and requirements is imperative. Inaccurate (or lack of) documentation, poorly structured deals, and improper promotion of projects can create unnecessary delays at best, and lead to project denials, fines, and litigation at worst. For any business or venture seeking funding through the EB-5 program, assembling a strong team with a track record of experience in EB-5 is paramount.
Key advisors include:
- Securities attorney
- Immigration attorney
- Business plan writer
Projects that are pursuing the Regional Center path will also need to identify and affiliate with a Regional Center.
- Business plan writer
- Develop a comprehensive, EB-5 compliant business plan for the job creating entity.
- Immigration Attorney
- Advise on program eligibility and requirement
- Securities Attorney
- Advise on project structure. Prepare subscription agreements, operating documents, and other offering documents as required
- Complete economic impact analysis to project job creation (Regional Center projects only) Complete Targeted Employment Area analysis (for TEA projects only)
- Regional Center
- Sponsor Regional Center projects
Often associated or affiliated with other advisors (securities attorneys, economists, etc.)
Facilitate deal structuring
Complete administrative functions for program compliance
Can also participate in fundraising and serve as a manager or partner of the New Commercial Enterprise (NCE)
- Fund Administrator
- Regional Center projects only. In the absence of audited financial statements, a third-party fund administrator must be retained by the NCE to ensure that EB-5 funds are properly deployed into the Job Creating Entity (JCE).
Regional Center designation
If your organization wishes to become a designated Regional Center, you must file Form I-956 with the United States Citizenship and Immigration Service. This form, introduced following the passage of the EB-5 Reform and Integrity Act of 2022 (RIA), is the formal application for Regional Center designation. Per USCIS policy, Regional Centers that were designated prior to the passage of the RIA must also file Form I-956 to be re-designated (though an injunction issued in June 2022 has allowed pre-existing Regional Centers to retain their designation for the time being). In addition to Form I-956, all persons involved with the Regional Center must file a Form I-956H. (Note that only U.S. citizens and permanent residents may be involved with a Regional Center.)
The fee for Form I-956 is $17,795. Regional Centers are subject to regular audits and must abide by strict record keeping obligations. In addition to the initial filing fee and project filing fees, all Regional Centers are required to pay an annual fee of $20,000 (or $10,000 for Regional Centers with fewer than 20 investors) into an EB-5 Integrity Fund.
Identify the Project Budget, Pro Forma, and Job Creation
As with traditional private investments, the budget and pro forma are the foundation of fundraising as the performance of a project overtime determines the prospective upside to investors. But with EB-5, they also play an important role in determining an EB-5 investor’s eligibility for the program.
Capital Remaining at Risk
An EB-5 investor’s capital must be deployed correctly in an EB-5 project. This means that the business or project needs to demonstrate that the full value of the investment is required. For example, a retail shop that only has a startup budget of $300,000 would not be able to justify the need for an $800,000 investment. In addition to the total project costs, other sources of capital (i.e., loans, other private investment, tax credits, etc.) should be identified and defined.
Justifying Job Creation
The EB-5 program is fundamentally a program that incentivizes foreign investment to create U.S. jobs. Regardless of the investment path, each individual EB-5 investor’s capital contribution must result in the creation of 10, full-time, qualifying jobs. As such, it is important to accurately project how many jobs your business or project will create, and the budget and pro forma and critical in supporting job creation estimates.
Job creation in Direct EB-5
In the case of a Direct EB-5 project, job creation is an estimate based on the needs of the project or business, but these estimates must be supported by the financial projections. It is important that projections are conservative and are substantiated by either a feasibility study, market analysis, or an existing pipeline of contracts for new business. It does all parties a disservice to overestimate the projected performance of a business, and can jeopardize more than the margin of return on investment. If the required jobs are not created, EB-5 investors lose their eligibility, effectively negating what can be years of time invested in the immigration process and in many cases eliminating the opportunity for a green card entirely.
- Documenting full time workers
- Evidence of jobs (intended to be permanent at time of creation)
- Doesn’t matter if it was “technically” a permanent job included in the business plan
As part of their visa application, investors must submit a credible business plan with substantiated forecasts to support job creation claims. Working with a professional to develop a plan that is compliant for EB-5 purposes and that portrays a job creation timeline and financial forecast that is realistic and backed by research is highly recommended for businesses preparing to raise capital from EB-5 investors.
Job creation in Regional Center Projects
For Regional Center projects, economic models are used to determine the total number of direct, indirect, and induced jobs created. The project budget and pro forma are the “inputs” for these models. A minimum of 10% of all jobs created must be direct jobs, but outside of that, both indirect and induced jobs can be applied to meet the minimum job creation requirements for any investor. It is recommended that project developers work with an EB-5 economist to develop an economic impact analysis for this purpose. The results of the analysis are not only required by USCIS for Regional Center project filings, but play an important role in project development by defining how many investors a project can support, and thus how much capital can be raised through the program.
Job Creation Cushion
For both Direct EB-5 and Regional Center projects, it is advisable to have a “job creation cushion”, meaning that the projected number of jobs exceeds, rather than just meets, the minimum job creation requirements for each investor. A typical cushion is 20%-30% (at least 12-13 new jobs per investor), depending on the project. This allows for a margin of error in forecasting which provides added security to investors. Building in a buffer helps to ensure that an investor still meets the job creation requirements, even if fewer jobs were created than were projected in the business plan, or if actual expenditure and revenue is lower than what the original economic analysis used to calculate outputs. This is particularly important for Regional Center projects that raise capital from multiple investors. Job creation is allocated to investors on a “first in” basis. So if 10 investors subscribe to the offering and only 90 jobs are created, the last investor to subscribe will not receive a green card. By capping subscriptions to a number that allows for a generous cushion, the risk for “last in” investors is reduced.
Structure the Offering
EB-5 capital contributions must be an equity investment into a new commercial enterprise; loans are not eligible. The capital must remain at risk for the duration of the EB-5 investor’s conditional visa period. And a return of the capital cannot be guaranteed. Outside of these requirements, the terms of EB-5 offerings vary and are defined by the issuer/company. As in traditional equity raises, the terms of the deal (i.e., equity share, returns, distribution schedule) play a role in how attractive a project is to investors. And how the project is structured – in terms of protections offered to investors relative to their immigration process – is also a key consideration. When structuring a project or defining the terms and developing the associated documentation for an offering, it is best to work with a securities attorney with ample EB-5 experience to ensure program compliance.
Regional Center Deal Structures
Because Regional Center projects have more flexibility regarding job creation, and are often designed to fit into a project’s larger capital stack, they are typically structured differently than EB-5 Direct investments. Rather than investors investing directly in the new commercial enterprise/job creating entity, Regional Center projects typically have a separate NCE into which EB-5 investors invest. The NCE then invests in, or loans, the entirety of the EB-5 funds to the Job Creating Entity (the JCE), which uses the capital, along with capital from other sources, to develop the project.
Develop and Compile Documentation
Once the project is defined and structured, all associated documentation is compiled into an offering package. This includes the comprehensive business plan, economic report (for Regional Center projects), offering documents, TEA analysis (if applicable) and associated documents and exhibits. In a Regional Center filing, an “I-526 template” will also be prepared by an experienced immigration attorney.
In addition to project related documentation, EB-5 investors must submit their own documentation to verify source of funds and other eligibility requirements. It is advised that EB-5 investors retain their own immigration attorney (not the same immigration attorney as the project sponsor) when identifying and vetting projects and to complete source of funds documentation to reduce conflicts of interest.