The two most common models for EB-5 investments are that of debt or preferred equity.

In the debt model, EB-5 investors make an equity investment in the project’s NCE (New Commercial Enterprise) which then loans the pooled EB-5 capital to the project’s JCE (Job Creating Enterprise). Debt models typically have finite terms with extension options, promissory notes, and a more senior repayment priority when compared to equity. It’s worth noting that 3rd Party Regional Centers profit from fundraising through the debt model, as they typically pay the EB-5 investors less than 1% and loans the EB-5 capital to a developer at 8-12%. This model can increase the risk that the EB-5 investors won’t be repaid their full investment due to the high sunk financing cost that the Regional Center added to the project and received before EB-5 investors are repaid.

In the preferred equity model, EB-5 investors make an equity investment in the project’s NCE which is usually the same entity as the JCE, therefore, the investors are equity owners in the project. Preferred Equity typically does not have a finite term, comes with a more senior repayment priority when compared to common equity, and receives payouts when the project is profitable or can sustain such distributions. This model can significantly reduce the risk that EB-5 investors won’t be repaid their full capital as it doesn’t burden the project’s cashflows with high sunk costs but rather gives the project more flexibility to be successful.