UNDERSTANDING THE IMPORTANCE OF FUNDING STRATEGIES AND KEY CHALLENGES FACED BY EB-5 INVESTORS
— BY VIVEK TANDON present itself through a simple question — sell or loan ?
Nobody is likely to have $ 800,000 sitting idle in the bank . Most investors have these funds locked in different types of assets — physical , financial , or digital . One question virtually every EB-5 applicant must tackle is whether to sell the asset or opt for leverage to retain ownership by bearing the interest cost of the debt .
An investor who prefers selling the asset over a loan stands to lose the potential appreciation in its value in the future . Conversely , the decision to sell may seem prescient if prices fall , and the EB-5 investment decision helps the investor avoid losses that would have accrued had he or she chosen to continue owning it .
The decision to sell property or equity investments or stock units of a U . S . blue-chip tech company can always , in hindsight , seem like a poor EB-5 funding strategy if the lost capital gains exceed the cost of servicing the loan , had the investor opted for the same .
Here , the investor is up against the natural human tendency to want it all — to provide for the worst-case scenario and simultaneously enjoy the best-case scenario ' s results . For an EB-5 investor , this often means the triple benefits of retention of asset ownership , permanent residence in the US , and successful recovery of the EB-5 investment .
Regulatory Restrictions and Legal Challenges
Factors that can further complicate this decision include legal , regulatory , or other practical hurdles involved .
Restrictions on remittance of borrowed funds outside the country or the mandate to use borrowed funds for specified purposes , which generally exclude the option of foreign remittance for an EB-5 investment , can effectively render some strategies moot even
Seemingly minor identifiable legal restrictions can create issues that significantly challenge the EB-5 investment decision
if the investor is cognizant of all risks involved and is prepared to accept the same .
Such regulatory obstacles can create the additional risk of an investor discovering such restrictions only after having reached the point of remitting the funds to the US .
Even known and seemingly minor identifiable legal restrictions can create issues that can significantly challenge the EB-5 investment decision .
Routing funds through immediate family members is a tried-and-tested strategy for helping an investor finalize the EB-5 investment in a timely manner without violating Path of Funds restrictions .
The inability of all family members to participate in this strategy or to fund the investment fully despite using this strategy can result in delays in funding the investment and securing a path to the green card as soon as possible .
For an Indian EB-5 applicant forced to stretch the investment timeline to the next financial year , the challenge caused by the Path of Funds requirements can increase the risk of being impacted by a future backlog and even lead to a significantly lengthier wait for the green card status .
Also , for an investor outside the U . S . or somebody with a child close to the age of 21 years , such funding strategy challenges may raise fundamental questions about the necessity or utility of applying for the EB-5 visa in the first place .
Tackling the Unknown Unknowns
Sifting through different funding strategies can expose the investor to unknown risks beyond his or her control . The decision to sell a property to fund the investment is based on numerous assumptions about valuations , demand and supply factors , parallel economy compulsions , and timelines .
An informed EB-5 strategy must acknowledge the potential impact of
unknowns and the possibility of these factors compelling significant changes to the investor ’ s original EB-5 plan .
This means the preliminary process related to funding strategies must inherently provide for the flexibility that all these variable factors demand . Yet , the investor must also have a clearly defined framework or roadmap that can be implemented to convert the planned EB-5 investment decision into reality .
An informed EB-5 strategy must acknowledge the potential impact of unknowns and the possibility of these factors compelling significant changes to the investor ’ s original EB-5 plan
VIVEK TANDON
Vivek Tandon is the founder and CEO of EB5 BRICS . A lawyer and an investment banker , Tandon ’ s primary focus is on educating investors in India and Dubai about the EB-5 Visa Program and EB-5 regional center projects and EB-5 direct investments . Tandon holds Financial Industry Regulatory Authority ( FINRA ) and U . S . Securities and Exchange Commission ( SEC ) securities licenses and is associated with Sequence Financial Specialists – a boutique investment banking firm and managing broker-dealer for alternative Investments including EB-5 .
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