The US Department of Homeland Security (DHS) has proposed regulations that would tighten the treatment of ‘bridge financing’ under the EB-5 Programme (commonly known as the investment linked green card programme).While the proposal is aimed at ensuring a stronger link between investor funds and job creation, immigration attorneys say it could reduce the number of projects that qualify for EB-5 funding and make project due diligence even more critical for investors.Under the EB-5 programme, foreign nationals can obtain permanent residence (green card) by making a qualifying investment (eg: $800,000 in high unemployment areas)in a US enterprise that creates at least 10 full-time jobs for American workers. Most EB-5 investments are made via regional centers that pool investor funds into large development projects.In practice, many real estate and infrastructure projects begin construction using temporary bridge loans, with EB-5 capital replacing those loans once investor funds become available. Developers often obtain short-term financing (of three years or less) and repay that bridge loan with the EB-5 capital, once it is raised. This approach is taken because it takes a substantial amount of time to organise an EB-5 offering and to gather investors to meet the capital raise requirements.“For years, US Citizenship and Immigration Services (USCIS) accepted this structure, provided the bridge financing was temporary and formed part of the original funding plan. This allowed projects to move ahead without any delay and enabled EB-5 investors to receive credit for jobs created during the construction phase,” explained Christopher Mason, chief communications officer and attorney with American Lending Center, an EB-5 regional center operator.“The proposed regulation seeks to narrow this flexibility. If finalised in its current form, EB-5 investors will no longer receive job-creation credit because the EB-5 capital has been used to repay the bridge loan. Jobs would only begin to be counted once EB-5 capital is actually deployed to the project, which could happen somewhat late in the project’s development,” added Mason.Industry experts note that while bridge financing has historically enabled projects to commence construction without delay, the proposal by DHS implies that replacing bridge financing with EB-5 capital resembles refinancing rather than funding new job creation. In its proposal DHS is placing greater emphasis on demonstrating a clear nexus between investor capital and employment creation.If the proposal is finalised, developers may need to delay construction until EB-5 funds are available, secure alternative long-term financing, or redesign their capital structures. Smaller developers that rely heavily on bridge loans could find it more difficult to launch EB-5 offerings, potentially reducing the range of investment opportunities available to foreign investors and in turn also adversely impacting job creation in the US economy.For Indian investors, who continue to account for a significant share of EB-5 applications, the proposal serves as a reminder that project selection is becoming increasingly important.The proposed rule will follow due process and will be finalised after inviting stakeholder comments. EB-5 experts are hoping the final rules will be more practical both for developers and investors.
