EB-5 regional center offerings often involve a new commercial enterprise (“NCE”), the entity the immigrant invests into and an independent job creating enterprise (“JCE”), which the NCE invests or loans the EB-5 investors funds into.
Each investor’s full investment amount must be deployed into the JCE. The investor’s EB-5 funds cannot be used to pay the NCE’s administrative expenses such as its legal or accounting expenses. Moneys received by the NCE from the JCE as part of the loan or preferred equity investment, such as interest payments or other returns, can be used to pay NCE expenses.
The full amount of the investor’s funds must be put ‘at-risk’ and should be spent in the project and not held in “reserves”, whether in the NCE or the JCE.
The United States Citizenship and Immigration Service (USCIS) has stated that the JCE can spend investor’s funds on certain expenses that are not necessarily job creating. The distinction is that the economist can only model certain expenses that are job creating in the economic report. So the ‘at-risk’ provision does not prevent EB-5 funds from being used for non-job creating expenses, such as land, insurance, permits, or developer’s fees.
EB-5 investments are often structured with ‘bridge loans’, or short-term financing. When a bridge loan is contemplated (identified) in the Regional Center project application, EB-5 funds can be used to repay the bridge financing when the EB-5 funds are later raised.
The bridge loan feature enables developers to get their project started by using their own equity or by undertaking more costly bank financing, and then having the EB-5 investor funds replace the bridge loan later.
The bridge loan concept is also helpful for EB-5 investors because by having the project start before their EB-5 money is invested, investors can see whether their money will be going into a project that is underway and actively creating jobs.
In some cases the jobs required by the investor for their permanent residency may have been created before investors have even made their investment.