Money and structure
Loan model
Also called loan structure.
The loan model is the regional center structure in which the new commercial enterprise lends the pooled investor capital to a separate job creating entity, most often a company the project developer controls, instead of taking an ownership stake in it.
What it decides
Statute defines the two companies separately: the new commercial enterprise is the entity that receives the investor capital, and the job creating entity is the entity that receives that capital from the enterprise and is responsible for the jobs, 8 U.S.C. 1153(b)(5)(D)(vi) and (v), a term statute ties to the regional center program. What makes a structure a loan model rather than an equity model is the position the enterprise takes in the borrower, a creditor's claim instead of an ownership stake, and USCIS says the business plan filed with Form I-956F should identify which one it is, listing equity stake, loan or some other financial arrangement. Developer control is usual but is not an element: the job creating entity may be unrelated, and statute keeps a separate label, affiliated job creating entity, for one controlled by people behind the regional center or the enterprise, 8 U.S.C. 1153(b)(5)(D)(i). The loan runs from the enterprise to the job creating entity and never from the investor to the enterprise, because money taken in exchange for a note, bond, convertible debt or any other debt arrangement between the investor and the enterprise is not capital at all, 8 U.S.C. 1153(b)(5)(D)(ii)(III)(bb). Matter of Izummi, itself a case about a partnership lending investor money onward, requires the full amount to be made available to the business or businesses most closely responsible for the jobs, so administrative, management, legal, finder and syndication fees the enterprise pays before the money reaches the borrower do not count toward the minimum investment. Repayment returns the money to the enterprise, not to the investor, and statute conditions redeployment on the job creating entity having repaid the capital it was lent, 8 U.S.C. 1153(b)(5)(F)(v)(I)(cc). The label is industry usage: neither the statute nor USCIS writes "loan model".
Where this is explained properly
Pages here that go into loan model rather than mentioning it.
Related terms
- Equity modelEquity model is the industry name for a structure in which the new commercial enterprise takes an ownership stake in the job creating entity instead of lending to it. It describes only that leg of the deal: the investor's own capital always goes into the new commercial enterprise as equity, never as a loan.
- Mezzanine debtMezzanine debt is a loan ranking below the senior lender and above every equity holder, and in a regional center loan model it is a common position for the loan the new commercial enterprise makes to the job creating entity. It describes that loan, not the investor's own stake, which has to be equity in the new commercial enterprise rather than debt.
- Capital stackThe capital stack is the ranking of a project's funding sources by priority of claim, from senior debt, which is paid first and absorbs losses last, down through mezzanine debt and preferred equity to common equity, which is paid last and absorbs the first losses. It is a finance term rather than an EB-5 one: nothing in the EB-5 statute or regulations fixes where a project's EB-5 money must rank.
- Bridge financingBridge financing is the interim debt or equity a developer or the principal of a new commercial enterprise uses to start a project before EB-5 capital arrives, and which the EB-5 capital then replaces.
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