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EB-5 Insights Where Government Policies and Business Realities Converge

How Can EB-5 Funds Be Used?

Posted in Regional Center

Developers should keep in mind that there is a distinction between how EB-5 funds can be spent versus what expenses can be modeled by an economist in a regional center case. EB-5 money can be spent on items that may not be “qualifying” for job creation purposes, and thus, not modeled for jobs by the economist. Here are some basic rules for how EB-5 funds can be spent:

  1. In a regional center case where there is a new commercial enterprise (“NCE”) and a separate job creating enterprise (“JCE”), the EB-5 funds must be fully deployed by the new commercial enterprise to the job creating enterprise under Matter of Izummi. Thus, in a regional center case, the full $500K or $1M from each alien investor must be deployed from the NCE to the JCE. The EB-5 money cannot be used to pay the NCE’s expenses, such as legal, tax or accounting expenses. Interest or other returns that the NCE receives from the JCE as part of the loan or preferred equity can be used to pay the NCE expenses.
  2. The EB-5 money should not be held in any “reserves” in either the NCE entity or the JCE entity. The full amount of the funds should be spent on the project.
  3. That being said, EB-5 funds can be used for non-job creating expenses, such as land, contingencies, and other non-qualifying hard and soft costs (insurance, permits, developer’s fees, etc.) USCIS has specifically said in stakeholder’s meetings that the JCE can spend the 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.
  4. When using the EB-5 funds to repay bridge financing, it is best to have a bridge note and/or loan agreement in place to show the bridge loan was extended as either short term financing or in contemplation of receiving the EB-5 funds.
  5. In a direct model with no regional center, funds must be spent by the NCE on operations. This can include salaries, rent, land, construction, working capital, etc.

Contact your GT attorney with questions.