When EB-5 funds are structured as a loan, there is no direct impact on the ownership structure of your project. The investors have pooled their money into a New Commercial Enterprise (NCE) which then acts as a lender so neither the immigrant investors nor the NCE acquire an equity stake in the project. This means that you retain full ownership and control over your project.
Control and decision-making: As the EB-5 funds are provided in the form of a loan from the NCE to the borrower, the EB-5 investors themselves have no direct relationship to the borrower or the project. This would be a lender/borrower relationship defined in the loan agreement and associated documents as compared to what may exist in an equity investment and its operating agreement.
The primary financial concerns of EB-5 investors will be, when is the borrower obligated to repay the loan to the NCE and what recourse is available if the borrower defaults on any aspect of the loan. Depending on the nature of the project, there may still be loan covenants and restrictions in the loan agreement, which can impose certain requirements and limitations on your project management. It is essential to carefully review these terms to understand their potential impact on your project. (One example of this could be the construction and operation of a hotel that then seeks to replace the third party management team of the hotel’s operations.) EB-5 funds are used as equity in your project: When EB-5 funds are used as equity, the foreign investors, either directly or through an NCE, become shareholders in your project. This means that the ownership of the project will be diluted, with investors owning some share based on their investment amount. As a result, you would be required to give up some ownership of your project.
Control and decision-making: The degree of control and decision-making power granted to EB-5 investors, or the NCE comprised of the EB-5 investors, will depend on the terms of the investment agreement. Generally, EB-5 investors are considered limited partners or non-managing members in the NCE, which means they have limited control and influence over the day-to-day operations and decision-making. However, they still have voting rights on certain significant matters, such as changes to the NCE’s scope, any major financial decisions, or the wrapping up of the EB-5 partnership (NCE).