Is a feasibility study required for an EB-5 business plan?
Kurt: Here is a brief summary of the items that go into a business plan:
- Project description
- Management's background
- Description of the EB-5 sources of funds, (i.e. whether a senior loan or equity).
Marge, how frequently are you provided a feasibility study as an aid to drafting the business plan and how important is it?
Marge: I probably see a feasibility study about 80% of the time if not more, and I think its very important to the business plan.
Not every developer wants to pay the cost for a feasibility study, but I think it adds a great deal of credibility to both the numbers you're trying to support in the business plan, as well as on the marketing side.
Kurt: As I see it, without a feasibility study, you've got two problems. On the one hand, you could be underestimating your inputs, which means you aren't counting as many potential jobs in your business plan as you could and alternatively, you could be overestimating your inputs, which is probably going to be the bigger problem in the long run.
Martin: When developing the business plan for an EB-5 package for a small business or a direct business, generally, I don't find that USCIS requires verifiable data to support the numbers.
Suzanne: Often, in the small business context, the feasibility study is not needed because the verifiable detail is publicly available.
In the case of restaurants, if you go to the National Restaurant Association, Nation's Restaurant News, and the 10-K reports of public restaurant companies, you can get a lot of information on financials, market trends, and so on. Anyone can verify this information online from the source and see that the sources are credible, so it's not necessary to get these numbers under the letterhead of Colliers International or another firm well known for market research.
And there can be other ways to show that projections are reasonable. For example, a manufacturing or product development business may already have contracts which state they will be able to sell a certain volume at a certain price. Or one can go to Risk Management Association and look at financials for other businesses in that industry category.
So it can be possible, if necessary, to make the business plan market analysis sufficiently compelling without reference to a feasibility study, especially for a small business. But if it's possible to get an appraisal or a PKF report or other appropriate third party study for your business, then that's a good idea, both for marketing and to support your business plan.
Martin: One of the things that I've found, for example, is that with a large hotel, the developer will usually have some type of feasibility study, a PKF or something similar, because the study was required for their banks anyway. Developers might have a 3-year old study, and numbers may have changed since then, but they're reluctant to spend more money to update those reports.
Marge: I tend to write more projects for EB-5 regional centers than direct business plans, so probably the number of 80% may be a bit skewed. But if you look at the amount of money the developer's putting into the project relative to the cost for a feasibility study, I think its good insurance.