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Is the EB-5 Program An Option for Small Company Financing?

Is EB-5 Investment an Viable option for Small Company Financing?

In 2010, small businesses accounted for 99.7% of U.S. employers (U.S. Census Bureau, 2010). More interesting is that small firms, those with 20-499 employees, outpaced larger employers in job creation from mid 2009-2011, according to the Bureau of Labor Statistics. Consistent job creation is an essential component of a healthy economy. Invested capital is one form of fuel that can help to sustain the momentum of job creation in the United States. According to some data, small company financing options do not appear to routinely attempt to tap into Foreign Direct Investment (FDI) or EB-5 Visa/Investment Program (EB5) funding. However, with research and appropriate planning, the implementation of a foreign investment strategy could support job creation within small companies in states that have experienced higher unemployment rates in recent years, such as Florida and California.

It is not revolutionary to suggest that successful execution of small company financing initiatives for start-up and emerging ventures has been challenging over the last several years. However, recent trends would suggest that direct foreign investment in the United States has stabilized over the past two years. In 2011, the inflows of foreign investments increased to $234 billion. While this is below the 2008 high of $310 billion, the 2011 numbers reflect a 12% increase over the $205 billion in FDI in 2010. Although the total number of new transactions in 2012 is expected to be a bit lower than in previous years, the overall value of these transactions has remained consistent.

What is Foreign Direct Investment?

In the United States, foreign direct investment is defined as the control or ownership, either directly or indirectly, by one foreign person. This foreign person could be an individual, branch, partnership, association or government. Further, this foreign person must control 10% or more of the voting securities of an incorporated or unincorporated U.S. business enterprise (15CFR §806.15 [a][1]).  The parameters of FDI could be an avenue for small company financing in certain key industries, such as manufacturing and technology.

Foreign Investment Through the EB-5 Program

Each year the United States allow up to 10,000 foreign investors to enter the country under a special immigration program that was enacted by Congress in 1990 to stimulate the U.S. economy and creation of American jobs. The EB-5 Investment program has an individual investment baseline of either $500,000 or $1 million, depending on the region of the United States. For the foreign national with the desire to start or purchase an existing business in the U.S. EB-5 is a viable option. For small businesses and entrepreneurs in emerging industries looking for a capital partner, this could represent an annual investment capital pool of $5 to $10 billion. For potential investors, several program criterion apply. U.S.-based businesses also have very specific requirements that must be met before a certifiable investment transaction can be completed.

EB-5 Resource Centers

Termed the Immigrant Investor Pilot Program, the network of EB-5 regional centers was established in 2002 by Congress. More often referred to by their common name, EB-5 Resource Centers help connect existing U.S. businesses with prospective foreign investors that want the business ownership without the demands of day-to-day operations. As of 2012, there were over 200 regional resource centers throughout the United States. California, Florida and Washington have the highest concentrations of resource centers approved by the United States Customs and Immigration Services (USCIS). For smaller organizations with annual revenues over $5 million foreign investments could be an untapped source of fresh capital to support the direct or indirect creation of new jobs, while providing an opportunity for investment and permanent residence in the United States for the foreign partner.

Next Steps

Since the program’s inception in 1990, the EB-5 investor initiative has never reached its full annual capacity of foreign investors. Recent changes in the administrative process for may help to turn the tide in the future. Although the process can be challenging for both the EB-5 investor as well as the U.S. companies that endeavor to partner with them; ultimately it can prove to have been a win-win proposition worthy to have been pursued. There are numerous sources for information for prospective business owners in the United States. Perhaps the first place to begin is with USCIS.  Within the site, a listing of EB-5 Regional Centers is available as well. If you think this program may be a good fit for your business, your management consulting team or attorney can also be excellent resources in the creation and formalization of your small company financing strategies.

Author Contact Information

Shawn Powell Joseph

Concentric Global Consultants, LLC

spowell@concentric-global.com

©2013 Shawn Powell Joseph. All rights reserved.

 

 

Sources

Bureau of Labor Statistic. (2013).

Jackson, J.K. (2012, October 26). Foreign direct investment in the United States: An economic analysis. Congressional Research Service.

Lowe, J.H. (2012, September). Direct investment for 2009-2011: Detailed historical-cost positions and related financial and income flows. Survey of Current Business.

Scott, S. P. (2012, October). U.S. international transactions: Second quarter. Survey of Current Business.

Small Business Administration. (2012, September). Frequently asked questions about small business. SBA: Office of Advocacy. Retrieved from www.sba.advocay

U.S. Census Bureau. (2010). Business dynamics statistics. Retrieved from http://www.census.gov/ces/dataproducts/bds/#

U.S. Chamber of Commerce. (2013). International agenda. Retrieved from www.wschamber.com

United States Citizenship and Immigration Services. (2012). EB-5 immigration investor. Retrieved from http://www.uscis.gov

United States Citizenship and Immigration Services. (2013). Immigrant investor regional centers. Retrieved from http://www.uscis.gov

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