EB-5 Investments: Equity Model or Loan Model?

What is the difference between an equity model and a loan model when it comes to EB-5 investments?

How can an EB-5 applicant invest in a regional center promising interest and repayment on a loan when loans are not considered EB-5 investments by the United States Citizenship and Immigration Services (USCIS)?

These are great questions and the answers are not as complex as one might imagine.

The Loan Model

Basically when the times comes for an EB-5 investor to invest in a regional center project, what they are actually doing is making an equity investment into a limited partnership company that the regional center created. This company then makes a loan to the EB-5 project. The EB-5 project then makes interest payments to the company who then makes interest payments to the EB-5 investors.

The company created by the regional center enters into a lender-borrower relationship with the EB-5 project. The lender (the regional center company) typically makes a 5-year secured term loan to the borrower (the EB-5 project). The borrower can secure the loan in any number or ways, whether through projected cash flow, land, or owner guarantees.

The Equity Model

The equity model refers to the equity stake an EB-5 investor holds in a project when they invest in the Direct EB-5 Program. Unlike investors in the Regional Center Program, an investor in the Direct Program will usually invest in their own project.

Conclusion

Depending on what an investor’s main goals are, either model can be ideal. If an investor’s sole focus is obtaining a green card, then the loan model may be preferable because after they receive their green card an investor will have an idea of when to expect repayment on their loan. Whereas, with the equity model, an investor may have as much interest in getting a high interest rate on their investment as in obtaining a green card. In which case, however, they may not know when they will receive their investment capital back because it may depend on the broad economy or even local market conditions.