EB5 Investors Magazine Volume 1 Issue 2 | Page 18

Jor Law, Esq. Angelique Brunner Understanding Loans by Angelique Brunner & Jor Law, Esq. For several years, the EB-5 “loan model” structure has dominated the EB-5 industry. The loan model typically involves a special purpose vehicle (“SPV”) that is formed to accept EB-5 investors. The SPV then makes a loan to the company that creates the jobs. The EB-5 investors in a loan model are invested in the SPV, as opposed to the company that operates the business and creates jobs. This means that the EB-5 investors in loan models are generally dependent upon the repayment of the loan for an exit. Therefore, for EB-5 investors in loan models that are concerned about the risk of loss in their EB-5 investment, it is important to ensure that the loan terms and quality of the borrower are suitable from a risktolerance perspective. 18 It is crucial for investors to understand the terms of the loan that supports their investment. The loan is often summarized by the issuer in an offering memorandum or other disclosure document. If the summary is not satisfactory or too brief, request a copy of the underlying documents. In some cases, the actual loan agreement is not finalized until close to the first draw from the borrower, which may be after marketing for the investment has begun or even after all of the funds have been raised. Investors may wish to reserve the right to view the agreement when it has been finalized and available or obtain assurances that the finalized loan agreement will not deviate from the proposed loan terms. In a transaction with related parties, such as is the case when a regional center has the same owners as the project developer, it may be particularly prudent for an investor to review the terms carefully to ensure that the affiliated nature between the parties does not materially affect the investor’s interest. This article touches upon a few things one should consider when evaluating the loans commonly found in EB-5 loan model structures. E B 5 I n v estors M ag a z i n e