Interim Financing: A Guide for Developers


Developers have increasingly looked to the EB-5 program as a less expensive, more easily obtainable source of capital compared to traditional financing.  However, one drawback of the EB-5 program is the lengthy processing time of I-526 applications. As a result of the ballooned number of I-526 applications submitted to U.S Citizenship and Immigration Services (USCIS) over the years, the time it takes for EB-5 petition approval has increased considerably, with current processing times ranging between 12-14 months. (We discussed USCIS processing statistics and how developers can look up the current wait times in this post).

eb-5 program

Lengthy I-526 processing times present a particular challenge to developers with shovel-ready projects. For many EB-5 projects, investors’ funds are placed in a pooled escrow account until at least one of their I-526s petitions is approved. To address this significant delay in project financing schedules, developers often opt for interim financing measures, such as bridge loans or immediate-release escrow agreements with their investors. In this post, we will review some of the interim financing options available to developers seeking EB-5 funding for their projects.

Bridge Loans & Early Release Escrow Arrangements

Bridge financing is probably the most common form of interim financing for EB-5 projects. Bridge loans issued by banks provide developers with the capital needed to begin construction and stay on schedule. Once an exemplar I-526 project pre-approval is granted or when one or more investors’ I-526 petitions are approved by USCIS, all investors’ funds are released and  are used to replace (or “take out”) the bridge financing. This process of releasing all investors’ funds contingent upon the approval of one application is commonly referred to as an “early release” escrow arrangement.

The popularity of bridge financing increased following the USCIS Policy Memorandum on May 31, 2013, which officially permitted its use for EB-5 projects. According to the Memo, “the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, may utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital.” Thanks to this Memorandum and increased demand for EB-5 capital, many banks are eager to offer bridge loans to developers waiting for I-526 approval.

The terms of bridge loans vary widely. Rates on bridge loans typically range from 10 to 14 percent. What banks will accept as collateral also differs. Some lenders will accept development land as a form of collateral, based on the provisions of a Deed of Trust.  If USCIS were to deny a project, banks would treat the loan like other loans and resort to the underlying collateral.[1]

As with any other loan, banks are cognizant of the risks involved in such financing arrangements, including the possibility that the project might not be approved by USCIS. Consequently, banks diligently study all project documentation in an effort to build sufficient confidence in the project’s eventual approval, thus leading to the bank approving the bridge loan. According to Law360, “Banks, not unlike individual investors, carefully consider project type and location. They tend to be most interested in hotel and senior facility projects and also tend to prefer projects in primary markets…”[2]

Despite these hurdles, more banks are offering bridge financing for EB-5 projects than ever before. Some banks advertise bridge financing services specifically for EB-5 projects. Examples include Citibank, Bank United and Banc of California.

Holdback Escrow Arrangements

Other developers work around the processing delay by setting up an arrangement that releases EB-5 funds immediately upon filing of the investor’s I-526 application, that is, before approval by USCIS. One such strategy is termed “holdback escrow,” wherein a certain proportion of EB-5 funds (often 20%, although it varies) is held back in escrow until the investor’s I-526 petition is approved. This concept is premised on an approximate 20% denial rate of I-526 petitions. Of course, this is a risky prospect for investors, since I-526 petitions may be denied and the project may be found non-compliant.[3]

Full Release Escrow Arrangements

In the “full release” scenario, the developer receives 100% of EB-5 funds when the investor’s I-526 petition is filed. This arrangement is usually accompanied by a guarantee from the developer to return the investor’s money in the event of an I-526 denial within a defined period of time. Importantly, for both holdback and full release escrow arrangements, any release of EB-5 funds prior to USCIS approval is typically available to developers who have a certain credibility in the marketplace and whose guarantee is deemed to be credible.[4] Smart investors, with the help of their legal team, will carefully assess the background and experience of the developer before committing to such agreements.




[2] Ibid.


[4] Ibid.

This post originally appeared on e-Council Reprinted with permission.

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