Comment: Unsecured Loans for EB5

  • Last week, the DC Circuit Court of Appeals ruled in Zhang v. USCIS that: "... A longstanding regulation, promulgated in 1991, defines the required capital to include cash or indebtedness secured by the immigrant's assets. This appeal presents the question whether, under the regulation, the proceeds of a loan qualify as cash or indebtedness. We hold that loan proceeds qualify as cash..." The key language here is that "We hold that loan proceeds qualify as cash" and that proceeds of the loan are not "indebtedness secured by the immigrant's assets". This is also the dictionary meaning of the term "proceeds" which refers to cash and not indebtedness. Essentially, the court's decision implies that USCIS has once again invented misinterpretations to read its own regulations, and the courts have had to step in to read the English dictionary to USCIS. This decision of the DC Circuit Court of Appeals is binding upon USCIS, and is applicable nationwide.
  • There are several important effects of this court decision, which will affect EB5 markets significantly, we explore some of these below.
  • This decision makes the use of unsecured loans for EB5 investment possible. After the earlier ruling of the DC District Court, immigration attorneys were hesitant in recommending unsecured loans as a source of funds, because they were waiting for this appeal to the DC Circuit Court to be resolved--which it now is. With the immigration bar behind this approach, an not insignificant amount of investment will be unlocked.
  • Some financial institutions in home countries of investors may have ways of advancing monies for EB5 purposes, which were earlier not usable due to USCIS's erroneous interpretation of its own regulation, which the courts have now corrected. Financial institutions in home countries of investors can now lend based on property held by the investors without that property having to meet the stringent source of funds standards of USCIS. This will unlock EB5 funds from overseas for US projects.
  • Also, employers in the US can lend funds to their H1B employees (some of whom may also have excellent US credit records, permitting them to obtain some unsecured loans from commercial lenders).
  • Source of funds is the oxygen of the EB5 ecosystem - and the real impact of the Zhang case is in greatly expanding source of funds possibilities. Historically, source of funds has been the greatest obstacle to landing EB5 investors for EB5 projects, source of funds can now be radically simplified through use of unsecured loans.
  • Consequently, this decision has the potential of tripling, yes tripling, the capital available for EB5. Once the effects of this decision percolates in the EB5 market it will free up more capital that can be invested in EB5, and thereby more than nullify the effect of raising the investment amount from 500k to 900k. We will be fleshing out more details on this in a forthcoming email, coming soon to your inbox, please stay tuned..

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