The EB-5 visa program allows foreigners to invest in American job-creating projects. Could it be an option for your business?
Following State Department’s recent announcement that they are on track to issue a record number of EB-5 visas this year, EB-5 program has been getting quite a bit of press.
Critics have said the program allows these investors to essentially buy their citizenship. But at a time when access to capital has been limited, the program has recently been used to launch new businesses, as well as revive troubled small businesses, helping them preserve jobs that would have otherwise been terminated.
Small Business and EB-5
“A small business owner may have stiff competition in the market with some of the larger projects, but if the project follows some basic EB-5 guidelines, then it has a chance of raising funds,” he says.
However, there is a reason why small EB-5 funded businesses and projects rarely make it into the news.
“Although some small businesses and smaller-scale projects have indeed raised funds, the market has shifted over the past few years as foreign investors are more drawn to larger-scale and higher-profile developments,” Ostar says.
Soliciting foreign investment is an expensive endeavor that comes with numerous travel, consulting and legal costs–among other things. The cost of raising foreign investments is often so high that projects that need $1 to $5 million in funds might not consider it worth the payout, says Ostar.
Don’t give up hope just yet, says Peter Joseph, executive director of IIUSA.
“There are definitely small businesses participating in the program and they are having an incredible impact on their community,” said Joseph, naming restaurants and assisted living facilities as some examples of small businesses that have found investors through EB-5.
Getting Started
Before your business starts soliciting foreign investors, you should be able to answer these few questions:
Are you patient and thorough?
“[EB-5 process] takes a lot of patience. It is not something that happens quiet easily. It requires extensive due diligence and a lot of research,” says Joseph, stressing that the process entails “a lot moving parts.”
USCIS spokesman Christopher Bentley agrees with Joseph, saying, “The most important piece of advice, is to be extra careful and as complete as you possibly can. Remit the proper payment. Sign where you are supposed. Be thorough.”
If a project/business were to utilize a Regional Center to obtain its foreign investment, the center would handle and oversee the “moving parts” for it.
Is your business located in the right area?
EB-5 has two different minimums for investments that qualify for the program.
If foreign investors invest $1 million or more, they can invest anywhere within the U.S. If they invest less than $1 million, they will be restricted to particular areas as defined by the EB-5 guidelines.
The minimum qualifying investment for the program is $500,000 and must be invested in one of two types of areas. This requirement aims to stimulate economy in rural areas, which are defined by USCIS as areas “outside a metropolitan statistical area or outside the boundary of any city or town having a population of 20,000 or more.” Other areas that are the focus of the program are targeted economic areas, often referred to as TEA zones, and are defined as areas with an unemployment of at least 150 percent of the national average.
“Each state has their own TEA policy. Certain states have pre-determined TEA zones, and other states allow you to apply or request for a certain zone,” said Ostar.
Will your business create enough jobs? Can you prove it?
Each foreign investor must demonstrate that their investment has resulted in the creation of ten jobs. Since the program is looking to stimulate the U.S. economy, preserving 10 jobs in troubled businesses also qualifies.
According to Ostar, the first project in which EB5 Capital was involved utilized the ‘job preservation’ model at a ski resort in Vermont. However, he did note, that “overall, most projects deal new job creation as opposed to job preservation.”
Is your business plan viable?
One of the ways that USCIS determine whether EB-5 visa requesters meet the requirements of the program is by evaluating a submitted proposals. Bentley assures us that USCIS has hired economists and does not just rely on those with immigration background to conduct these evaluations.
According to Ostar, if you chase an EB-5 investment, the center would be responsible for assisting you in creating an EB-5 compliant business plan.
“It is possible to apply for an EB-5 visa without investing through a Regional Center, but this would require the applicant to write his or her own business plan. There are specialized EB-5 consultants who can assist in the writing of these plans,” adds Ostar.