Jor Law, Esq.
Angelique Brunner
Understanding Loans
by Angelique Brunner & Jor Law, Esq.
For several years, the EB-5 “loan model” structure
has dominated the EB-5 industry. The loan
model typically involves a special purpose vehicle
(“SPV”) that is formed to accept EB-5 investors.
The SPV then makes a loan to the company
that creates the jobs. The EB-5 investors in a
loan model are invested in the SPV, as opposed
to the company that operates the business and
creates jobs. This means that the EB-5 investors
in loan models are generally dependent upon the
repayment of the loan for an exit. Therefore, for
EB-5 investors in loan models that are concerned
about the risk of loss in their EB-5 investment, it
is important to ensure that the loan terms and
quality of the borrower are suitable from a risktolerance perspective.
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It is crucial for investors to understand the terms of the loan
that supports their investment. The loan is often summarized
by the issuer in an offering memorandum or other disclosure
document. If the summary is not satisfactory or too brief,
request a copy of the underlying documents. In some cases,
the actual loan agreement is not finalized until close to the
first draw from the borrower, which may be after marketing
for the investment has begun or even after all of the funds have
been raised. Investors may wish to reserve the right to view the
agreement when it has been finalized and available or obtain
assurances that the finalized loan agreement will not deviate
from the proposed loan terms. In a transaction with related
parties, such as is the case when a regional center has the same
owners as the project developer, it may be particularly prudent
for an investor to review the terms carefully to ensure that the
affiliated nature between the parties does not materially affect
the investor’s interest. This article touches upon a few things
one should consider when evaluating the loans commonly
found in EB-5 loan model structures.
E B 5 I n v estors M ag a z i n e