Tag Archive for: EB-5 Due Diligence

Standalone direct EB-5 can support small business with immigrant investment outside the regional center program. But not every business is a good fit. Making direct EB-5 work in practice requires considering the practical implications of program requirements.

Officially, direct EB-5 is open to almost any business type. The USCIS Policy Manual states that “Congress placed no restriction on the type of the business if the immigrant investor invested the required capital and directly created at least 10 jobs for U.S. workers.” (6 USCIS PM G Chapter 1(B)(1)). In practice, direct EB-5 suitability depends on investment needs, structural factors, business type, and development stage.

Key Suitability Questions for Direct EB-5 Investment

Investment Needs

• Does the business need at least $800,000 or $1.05M to launch, and can this need be supported with documentation? (If not, then the EB-5 investment would not qualify as “at risk.”)
• If the business needs more than $1M in capital, have sources been identified? (A business is allowed to have non-EB-5 investors and to require non-EB-5 startup capital, but there are additional complications and evidence requirements to consider.)

Structural Factors

• Can the job-creating enterprise admit an EB-5 investor as an equity owner? (This is a non-negotiable requirement.)
• If the EB-5 investor is primarily responsible for business development, is he or she in a position to exercise that responsibility? (Will the investor be practically able to launch and operate the business, given the investor’s current location and visa status, and likely timeline to obtain a visa through EB-5? If the EB-5 investor is not involved in developing or managing the business, can the investor be given a role in policy formation?)
• If non-EB-5 owners and managers are involved, are they willing to accommodate EB-5 requirements and evidence requests? (This practical issue has historically been a significant success factor.)
• Will the business have professional systems in place for bookkeeping, employee verification, and payroll? (Long-term, the EB-5 case can only be as strong as the documentation available to support it.)

Business Type and Development Stage

• Will the business predictably need and support at least 10 full-time employees within three years? (Predictability, employment type, employment level, and hiring schedule are all key requirements.)
• Is the business new, with no operating history and no employment prior to EB-5 investment? (If not, it still might work, but there are complications to navigate.)
• Can the business reach significant milestones prior to I-526 filing, including securing a location and completing company formation and registration steps?
• If relying on a reduced EB-5 investment amount, does the business location qualify as a TEA?
• Is the business model familiar and relatively predictable? (Can revenue and employment forecasts for the coming three years be made with fair confidence, and validated as reasonable? Do comparable companies and products exist? Can the business plan be supported with reference to industry standards, or other independent support such as contracts? USCIS can deny the EB-5 petition if it finds the business plan to be too speculative, or if actual business development ultimately differs significantly from the I-526 plan.)

Examples of business types that have successfully used direct EB-5 investment include retail establishments (convenience stores, liquor stores, gas stations), service providers (repair service, cleaning service, salon, care centers), small manufacturers (food packaging, device manufacturers, cabinet makers), warehousing and logistics companies, hospitality (hotels, restaurants), care facilities, and preschools. Less common, but occasionally successful business types include agricultural businesses (dairy farm, greenhouse), and tech companies (software developer, device developer). Franchises can be particularly suitable because they are relatively standardized and predictable (in theory), and USCIS loves standardization and predictability. Generally the more innovative the business and product, the more difficulty it will face in USCIS review.

Top reasons for project-related failure in the EB-5 context:

• The business was never able to launch at all due to insufficient capital or inability to obtain required permissions.
• The business launched, but unable to create and verify 10+ eligible full-time positions.
• The enterprise was inappropriate for EB-5 from the beginning due to pre-EB-5 business history or non-qualifying structure.