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Replacing Debt with EB-5 Capital, how far back can you go?

Navigating through the EB-5 Bridge Financing Maze.


Replacing Debt for EB-5 capital  in Construction Loans?

How far back is it safe to replace bridge capital?

At Houston EB5, our goal is to always inform potential EB-5 investors in the clearest way possible. As a team of immigrants, we want you to have a successful EB-5 journey and are glad to provide clear insights for your due diligence.

EB-5 Investors should exercise caution with projects that promise that you can claim the jobs created before you invest. Construction on these projects is usually finished or close to completion. The developer may be trying to replace funds they spent years ago with new EB-5 capital. This may put your immigration in peril.

At today’s high interest rates, developers are hard-pressed to find affordable sources of capital. They may be looking at EB-5 as a way of lowering their finance costs. As an example, let’s say that a developer has a construction loan that has come to maturity. Most likely they got it three years ago when rates were much lower than today.

The EB-5 Visa Program is a win-win proposition that gives Green Cards to investor families whose capital generates jobs. It was never meant merely as a way to lower the cost of capital.

Replacing debt with EB-5 capital may be problematic. Some guidelines in the USCIS Policy Manual can be rather vague. Adjudicators of the U.S. Immigration and Citizenship Service may interpret them in different ways.

EB-5 is a Job Creation Program

An essential  USCIS Policy Manual  I EB-5 Visa requirement is job creation. Your capital must create at least 10 full-time and permanent jobs. You must also demonstrate that the project was not feasible without EB-5 capital.

This may be hard to prove when the EB-5 capital comes in so late in the game. Therefore, EB-5 investors may not be able to claim the jobs they will need to get their Permanent Green Cards.

EB-5 Cannot Replace Permanent Financing

Since the project has advanced so far without EB-5 funds, the USCIS may see the capital replaced as part of the project’s permanent financing.  USCIS Policy is that EB-5 financing cannot replace permanent, long-term financing .

Under some circumstances, EB-5 capital can replace interim financing known as bridge financing. This is short-term financing that “bridges” the gap between when a developer needs cash and when they finally receive EB-5 funds. Just like an EB-5 investment, bridge capital can be debt or equity. Typically, bridge financing comes as a loan.

EB-5 investors must be aware that the use of bridge financing can be a grey area. USCIS has admitted that the difficulty has been in explaining what characterizes bridge financing as opposed to permanent financing.

Read the Fine Print

We encourage you to read the fine print, as some EB-5 projects may be masking long-term debt as short-term bridge financing. The developer may be trying to pay off the revolving line of credit of a construction-to-permanent loan. Also, the developer may have a short-term loan that had one or more one-year extensions. After a couple of extensions, is it still short-term? The question becomes, how far back is it safe to replace bridge financing?

Bridge Financing in EB-5

The EB-5 program was initially designed to enable developers or business owners to develop a business plan, raise EB-5 capital, and then execute the project. To protect EB-5 investors, their EB-5 funds were escrowed and released only when their I-526 Petition for Immigrant Investor was approved.

With ever-increasing processing times, developers had to get projects ready and then wait for years until EB-5 funds became available. The EB-5 market responded with early escrow release mechanisms and widespread use of bridge financing.

In that way, they could start the project and keep it moving forward without delays. 

When EB-5 funds enter a project, bridge capital expenditures have already created jobs. The EB-5 investors need these jobs for their I-829 Permanent Residence approval.

Can the EB-5 investors take credit for the job creation that occurred before the EB-5 capital was invested? Well, it all depends. EB-5 investors may get job credit from bridge financing expenditures only when certain rules are closely followed.

Correct Flow of EB-5 funds from Investment Partnership to Project

USCIS will give EB-5 investors credit for the jobs the bridge financing has created only if there is a correct funding procedure. EB-5 investors subscribe as Limited Partners in an Investment Partnership sponsored by a Regional Center. Their funds are loaned to a Project or become preferred equity in an entity that owns the Project. In EB-5 lingo, the Partnership is known as a New Commercial Enterprise (NCE). The project is known as the Job Creation Entity (JCE).

The EB-5 funds must go from the NCE to the JCE who then repays the expenditures. The NCE cannot pay down those costs directly. The NCE cannot repay costs incurred by another entity, like a JCE parent or affiliate company. All the NCE funds must be used. Any EB-5 funds that are maintained in reserve are not exposed to risk. Otherwise, they will violate another EB-5 visa requirement.

Nexus to Project

The bridge financing must have paid only those expenditures that were essential to the Project. It must be clear that they were needed when they were incurred. The nexus between the EB-5 capital and the creation of jobs is clear. This prevents the use of EB-5 capital as a mere refinance tool.


The JCE must establish that, at the outset, the project planned to replace bridge financing with EB-5 capital. In other words, the project got interim financing because it expected EB-5 capital later. The JCE must clearly document the future use of EB-5 funds as early as possible to the USCIS and EB-5 investors.

However, if the use of EB-5 funds wasn’t planned, EB-5 investors can still get credit for the jobs. For this, the JCE must prove that bridge capital was contemplated as short-term, temporary financing to be later replaced by more permanent long-term financing from EB-5 capital or other sources.

Contemplation is a very important test for USCIS. If there was never the intention to replace the bridge capital, the EB5 capital was never needed.

Temporary and Short Term

Contemplation  alone is not enough for the USCIS. They want to make sure that the bridge loan was not a long-term solution.  For a bridge financing to qualify, it must be temporary, that is, not part of the project’s permanent financing. It must also be short-term, which USCIS understands as one year to two years. However, EB-5 investors must be aware that the USCIS adjudicators have not been consistent on this interpretation. USCIS adjudicators have not been consistent on this interpretation

If it Quacks like a Duck

If a so-called bridge loan behaves like a permanent loan, it will probably be adjudicated (and denied) as such. The substance, not just the label, is what counts.

There are several indicators that the developer may be disguising a permanent loan as bridge financing. Among them are maturity dates longer than two years, or that coincide with the end of construction. If the loan is a large portion of the capital stack, this may point to long-term financing.

An interest rate close to that of conventional financing is another giveaway. Developers often secure bridge loans in the early stages of a project, even before permit approval. Bridge loans come at high interest rates as they provide quick cash, and the lender is taking a bigger risk. It is only after full entitlement that the project becomes eligible for traditional, lower-interest, longer-term loans for larger amounts.

Situations can be complex. Let’s take for example the case of a developer that had a three-year construction to perm loan that came to maturity. They were able to refinance 70% percent of the loan and used their own equity as bridge funding for one year for the other 30%.

Since one year meets the USCIS loan policy short-term definition, they went ahead and raised EB-5 funds to replace the bridge financing. Will the USCIS approve this as valid bridge financing for EB-5? Certainly not.

This was a financial move to save the developer and not to create jobs.  The USCIS will deny EB-5 investments they see as simple capital swaps to pay down more expensive debt unrelated to job creation.

Investors must exercise caution with projects that rely on extended bridge financing (spanning several years). They should verify that funding and project timelines guarantee that EB-5 funds genuinely contribute to job creation, rather than merely serving to repay bridge loans.