Kurt: The EB5 business plan has two purposes. First, you want to make sure your business plan is written to be I-526 compliant and ultimately approved by USCIS. Second, your plan needs to position your EB5 offering for marketing.
My belief is that everything you do in your business affects your brand and certainly this includes in a significant way, your business plan, which is given to investors as part of the offering. The plan is going to make an impression on investors and influence their decision of whether to participate. Obviously your business plan needs to recognize that reality while still being accurate.
Let's begin by discussing the I-526 approval aspects.
Martin, would you mind starting us off by talking a bit about ‘Matter of Ho’ issues?
Martin: Many years ago, back when the USCIS was still called the INS, they issued four precedent decisions which essentially restricted the EB5 program. The ‘Matter of Ho’ is a precedent decision that just says that an extremely detailed business plan is needed in an EB5 undertaking, and it describes all the components.
If one is submitting a I-526 application or an Exemplar I-924, a ‘Matter of Ho’ compliant business plan is required. If one is submitting an application for a new regional center based upon a hypothetical project, a lesser standard is required.
‘Matter of Ho’ requires a lot of detail. Usually, the project has to be shovel-ready and the land tied up, though not in every case.
Kurt: Phil, would you mind talking a little bit about the consistency required between the business plan and the other offering documents? Do you find that this is a minor issue or is this something that USCIS takes very seriously?
Phil: It’s a very important issue. A key requirement is consistency between the business plan, which ultimately supports the assumptions that go into the pro forma, and the feasibility study. At the very least, if there are differences between the feasibility study and the pro forma, especially if you are using revenues as an input into the economic model, the differences should be justifiable.
Similarly, the economic impact report inputs should match both the business plan and pro forma, which should all align back to the capital stack.
Kurt: And what about supporting reasonable inferences?
Phil: I assume you're talking about having proper assumptions in the business plan, which ultimately drive the numbers.
First of all, USCIS' directive is that inferences should not be conveyed as conclusive assumptions.
For example, say you're building a school and you're projecting to have $3 million in revenues in Year 2. The assumption behind your revenue forecast is that you expect to have 400 students enrolled at X dollars per student. Well, that's not properly justifying the numbers. You’ll want to be able to explain how your plan gets to those 400 students.
Similarly, all the assumptions that go into driving the numbers should be properly backed up either by a feasibility study, market study, or some other third-party report, although internal experience can also be valuable if it is well documented and provable.
Suzanne: I agree with the importance of consistency because that is a number one issue that I see raised in USCIS requests for evidence on business plans. They frequently point out consistency issues, both internal, and then with external evidence, and even with information that the USCIS found on its own.
Consistency also points to the issue of credibility. If there are any inconsistencies, USCIS may judge the business plan not credible. Let me read one sentence on the purpose of a business plan from the decision on Matter of Ho: “to be ‘comprehensive,’ a business plan must be sufficiently detailed to permit the service to draw reasonable inferences about the job creation potential."
That job creation potential is very important to keep front and center in the purpose of a business plan. If it's a regional center plan, it needs to support the inputs to the economist’s report, the numbers that are being entered into the formulas for job creation, and carefully show that those are reasonable estimates. If it's a direct EB5 plan, the section on job creation needs to be carefully written to show how qualifying job creation will occur.
Martin: In addition to the issue of consistency, it's extremely important from the immigration lawyer's point of view to ensure that the business plan is consistent with the private placement memorandum (PPM) and the economic study, as well as any fliers or brochures or website descriptions of the project the developer may have put online.
On the last USCIS stakeholders' call, it was mentioned that the USCIS has individuals who go online and search for information about projects in China to see if those agents' representations are consistent with the documentation that is being submitted with a I-924 or a I-526.
It can be quite a challenge; they may go through one reiteration of the documents after another to ensure that one particular number in one document is not inconsistent within another document.
It's also very important to read all the documents with common sense.
I once saw a denial that involved a casino near Carson City, Nevada. The business plan and the economic study said that this casino was going to create 3,000 jobs. I think there were about 2,000 people in the town. USCIS denied it, saying, "Well, how are you going to create so many jobs? You don't even have that many people around."
I thought there was a problem with the case because Carson City's not far from Reno, so maybe they would be commuting.
Also, I see a lot of developers try to get over the 2-year development period to get the boots on the ground construction jobs. USCIS sees a lot of these projects, and I see them too.
If I see a $30 million building, and I go back to the people and say, "How could you possibly justify that this will be built in 2½ years when my other projects are being built in 16 months?" I think it's very important to look at these things from a common sense point of view.
Phil: Anyone who has done research into EB5 will have heard the term ‘Matter of Ho’ business plan. Some go so far as to insist that we write ‘Matter of Ho’ on the business plan’s front cover.
While I think it's important that people recognize the ‘Matter of Ho’ compliance aspect within a business plan, its really a bit of a misnomer. ‘Matter of Ho’ is not the only guidance that dictates what should go into a business plan.
There have been several other RFEs which have added clarity to business plan requirements since ‘Matter of Ho’. There have also been memoranda and informal statements issued by the USCIS which have helped to clarify some of the ‘Matter of Ho’ requirements.
It's important to understand that there's more to a business plan than just ‘Matter of Ho’, and that's where the experience of your team is really important.
Kurt: Let’s move on to the second purpose of the business plan. I don't think issuers can ignore the fact that immigrant investors will basing their decision largely on the business plan. And it’s a big part of the PPM.
Suzanne: I think that a good presentation, clear language, concise organization, and nice graphics can only help as far as providing comprehensive and easily understandable information to anyone reading the EB-5 business plan. Even if it only goes to USCIS for review, it's a good idea to make the business plan sell the story, making it clear, making it compelling and accurate. That is one issue.
If the business plan will not only be used as part of the I-526 petition which is reviewed by USCIS, but will also be actively used in the marketing process and reviewed by due diligence providers or broker-dealers, then it's helpful for the business plan writer to know “this plan is going to need to be translated”, “this plan is going to China”, “this plan's going to my broker-dealer”.
That may affect the kind of content that we suggest the client put into the plan.
One example of an area of the plan that should be tailored to its audience is the section on experience of the issuer, the regional center, and the developer. It perhaps doesn't need to be very long if it's only going to USCIS as they generally will only want to know a little bit about it. But investors and their advisors are generally very interested in that section, so it had better be more detailed if it's going to be actively used in marketing.
Martin: I love to see an executive summary at the beginning of a business plan. It doesn’t matter whether it's on the business plan or the economic study, or even our own cover letters that go with the I-526 packages. The executive summary should describe what the project is, where it is, whether or not it's located in a TEA, how many jobs will be created, what the capital stack is, etc. I think an executive summary is very helpful to the examiner.
Phil: I wholly agree with that. In fact, when writing a business plan, we try to take the approach, throughout the plan, that whenever there’s key information within a section, we begin with a summary of that section.
Our intent is for the adjudicator to easily find the information they're seeking. We make sure that the deep-dive information is there as well, but if they’re only looking for the basics, they can be readily found.
Kurt: Martin, do you have any sense of whether a well-written business plan will expedite the USCIS approval process?
Martin: I don't have any evidence of that, but we always try to spend a lot of time making things simple and concise and easier to review.
I try to make sure that all documents are written in a large font because I have sympathy for the examiners. And graphics do help tell the story.
I can’t be certain that a wordy, poorly put together business plan, even with all of the components, would slow things down at the USCIS. But as it stands with USCIS, things are moving awfully slowly, and the USCIS’ internal processes seem to be very inconsistent.
It’s hard to tell, but we can assume that the better put together plans are easier for the USCIS to process and hopefully, will be processed faster.