I. A NEW STANDARD, AND AN OLD PROBLEM
In the April 22 public engagement with the EB-5 stakeholder community, the Immigrant Investor Program Office (“IPO”) articulated a new adjudications standard that precludes the EB-5 investor’s use of loan proceeds as a source of investment capital unless the investor shows that the promise to repay the loan has been secured by assets the investor owns. As stated by IPO:
[P]roceeds from a loan may qualify as capital used for EB-5 investments, provided that the requirements placed upon indebtedness by 8 C.F.R. § 204.6(e) are satisfied. Under 8 C.F.R. §204.6(e), “[c]apital means “cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness.”
In order to establish an investment of capital, 8 C.F.R. § 204.6(j)(2) allows a petitioner to submit as evidence, among other items, the following:
Evidence of any loan or mortgage agreement, promissory note, security agreement, or other evidence of borrowing which is secured by assets of the petitioner, other than those of the new commercial enterprise, and for which the petitioner is personally and primarily liable.
USCIS classifies proceeds of a loan that are used for EB-5 investment as indebtedness governed by these regulatory requirements. When using loan proceeds as EB-5 capital, a petitioner must demonstrate first that they are personally and primarily liable for the indebtedness. That is, they must demonstrate that they bear primary responsibility under the loan documents for repaying the debt that is being used to satisfy the petitioner’s minimum required investment amount.
In addition, the petitioner must demonstrate that the indebtedness is secured by assets the petitioner owns and that the value of such collateral is sufficient to secure the amount of indebtedness that is being used to satisfy the petitioner’s minimum required investment amount. Put another way, indebtedness secured by assets ownedby the petitioner qualifies as “capital” only up to the value of such collateralized assets.