Capital at Risk: What Does It Mean in EB-5?

The EB-5 Immigrant Investor Program requires that an investor place a specific amount of capital "at risk" to qualify for a green card. Understanding what "at risk" truly means is crucial for successful program compliance. This concept is central to the investment structure and is strictly monitored by U.S. Citizenship and Immigration Services (USCIS).

Defining "Capital at Risk" in the EB-5 Context

For EB-5 purposes, capital is considered "at risk" only when the investor has surrendered control over the funds and faces the possibility of loss or forfeiture. This is not merely a theoretical risk; it must be a genuine financial exposure.

Criteria for Capital Being At Risk

USCIS examines several key factors to determine if the investment meets the "at risk" threshold:

• Investment Obligation: The investor must be unconditionally obligated to make the required capital investment.
• No Guarantees of Return: The investment cannot be guaranteed by the New Commercial Enterprise (NCE), the Regional Center, or any other party.
• No Secured Loans: The investment funds cannot be secured by the investor's own assets or by the assets of the NCE.
• Exposure to Loss: The investor must be subject to the potential loss of principal if the business fails or underperforms.

What is NOT Considered At Risk?

Certain financial arrangements explicitly violate the "at risk" requirement:

1. Debt instruments where repayment is assured.
2. Investments secured by assets owned by the investor.
3. Arrangements that allow the investor to withdraw capital under specific conditions unrelated to business performance (e.g., redemption rights tied only to visa approval).

The Role of Loan Guarantees and Redemption Rights

The most common pitfalls for EB-5 investors involve guarantees or early redemption options. USCIS scrutinizes these arrangements heavily.

If the investor can recover their capital simply by waiting for a specific date or by triggering a non-business-related event, the capital has not truly been placed at risk.

Examples of Prohibited Arrangements

Consider these scenarios:

• If the NCE promises to buy back the investor's shares upon denial of the I-526 petition, the capital is not at risk during that period.
• If the investment is structured such that the investor retains a security interest in the assets used to fund the investment, the risk is mitigated.

Documenting the "At Risk" Status

Proper documentation is essential to prove compliance with this requirement. The documentation must show a clear path of funds and the investor's relinquishment of control.

The following documents typically support the "at risk" claim:

1. Evidence of transfer of funds from investor's personal accounts to the NCE.
2. Investment agreement showing no guaranteed repayment terms.
3. Business plan demonstrating the use of funds for enterprise operations, not collateral.

In summary, "Capital at Risk" means the investor's money is genuinely exposed to the fortunes—good or bad—of the new commercial enterprise, aligning with the program's goal of fostering economic growth through committed investment.