Impermissible Loan Agreements

An impermissible loan agreement in EB-5 refers to a loan agreement between an EB-5 investor and the EB-5 project (or its developer) that is not compliant with the regulations set forth by the United States Citizenship and Immigration Services (USCIS).

These regulations stipulate that EB-5 investors must make an "at-risk" investment in a new commercial enterprise (NCE) and that the funds must be irrevocably committed to the enterprise.

Therefore, loan agreements that guarantee either the complete or partial return of the investment would be considered impermissible and would not qualify for EB-5 investment.

Impermissible loan agreements also include investment capital exchanged for a note, bond, convertible debt, obligation, or any other debt arrangement between the investor and the NCE.

Also, the investor cannot be guaranteed the right to eventual ownership or use of a particular asset, such as the ownership or use of the real estate, in exchange for the investor’s capital investment in the NCE. Any such expected current value of that ownership or use of an asset will be deducted from the total amount of the investor’s capital contribution that is deemed at risk for EB-5 purposes.

However, EB-5 regulations do allow for debt arrangements that feature debt-arrangement options exercisable by the NCE.

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