Funding an EB-5 investment with borrowed money has long been contested, but the law is now comparatively settled. Investors borrow for many reasons: their wealth is tied up in property or private company shares that are inconvenient to sell; they want to preserve liquidity; or a family member prefers to lend rather than give. This article sets out the current rules for loan-funded investments, explains the significance of Zhang v. USCIS, and lists the documents to prepare. It is not legal advice; any loan structure should be designed by immigration counsel case by case. The full source-of-funds checklist appears in the Source-of-Funds Document Checklist.
Starting point: what counts as “capital”
The EB-5 regulations (8 CFR 204.6) define “capital” to include cash, equipment, inventory, other tangible property, and indebtedness secured by assets owned by the investor, provided the investor is personally and primarily liable and the assets of the new commercial enterprise (NCE) are not used as security.
The “indebtedness” in that definition refers to a promissory note or similar obligation the investor gives directly to the NCE, in other words, contributing capital in the form of “I owe you.” For that kind of contribution the security requirement is mandatory. But most loan-funded investments do not look like that: the investor borrows cash from a bank or another person and then contributes the cash to the NCE. The distinction between these two situations is the heart of Zhang.
What Zhang v. USCIS decided
Around 2015, USCIS adopted the position that when an investor contributed cash obtained through a third-party loan, that cash should be treated as “indebtedness” and therefore had to be fully secured by the investor’s own assets to count as a qualifying investment. Many petitions funded by unsecured loans, or by loans secured on someone else’s assets, were denied on that basis.
Zhang v. USCIS (U.S. Court of Appeals for the D.C. Circuit, 2020) rejected that position. The court held that cash an investor borrows from a third party is cash when contributed to the NCE, not “indebtedness” within the meaning of the regulation; the collateral requirement applies when the investor gives a debt instrument directly to the NCE, not to loan proceeds. Accordingly, USCIS cannot deny a petition merely because the loan is not secured by the investor’s own assets.
After Zhang, the compliance framework for loan-funded investments comes down to three points:
- loan proceeds are qualifying capital;
- the loan need not be collateralized with the investor’s own assets; but
- the investor must still show that the funds are lawfully sourced, that the investor bears genuine repayment liability, and that the capital is actually at risk.
Rule one: the investor must be primarily liable
The fundamental difference between a loan and a gift is the obligation to repay. USCIS requires the borrower to be the investor personally, with primary responsibility for repayment. In practice this means:
- The loan agreement should name the investor as borrower, not a spouse, parent, or a company the investor controls. If a company borrows and then passes the money to the investor, the nature of that second transfer must be separately explained, usually as a distribution or loan from company to individual, which adds a further layer of proof.
- The investor should have repayment capacity commensurate with the loan, such as stable income or assets that could be liquidated. A “loan” far beyond the investor’s ability to repay invites suspicion that it is really a gift or a nominal arrangement.
- If a third party provides security or collateral (for example, parents pledging their property for a child’s bank loan), Zhang means this is no longer an obstacle in itself, but the ownership of the collateral and the source of funds used to acquire it must be documented as well.
Rule two: the lender’s source of funds must also be proven
This is the most frequently overlooked requirement in loan-funded cases.
- Loans from banks and other licensed financial institutions: the bank’s source of funds generally need not be shown; the loan agreement, disbursement records, and repayment terms suffice.
- Loans from individuals or non-financial entities (relatives, friends, the investor’s own company, or a third-party business): USCIS will require proof of the lender’s lawful source of funds, to the same depth as for a gift donor. The logic is straightforward: if the lender’s money is of unknown origin, so is the money lent.
Borrowing from a relative is therefore no less work than accepting a gift from that relative. Both require tracing the relative’s funds; the only difference is whether the investor is obliged to repay. For the gift side, see Gifted Funds.
Rule three: secured versus unsecured loans
| Type | Status after Zhang | Focus of proof |
|---|---|---|
| Secured by the investor’s own assets (e.g., a mortgage) | Qualifying | Title to the collateral, source of funds used to acquire it, loan agreement, disbursement and repayment records |
| Secured by a third party’s assets | Qualifying (no longer denied because the guarantor is not the investor) | As above, plus the guarantor’s identity, relationship, and source of the pledged assets |
| Unsecured (bank credit line, loan from family or friends) | Qualifying | Genuineness of the loan agreement, investor’s repayment capacity, lender’s source of funds (if not a bank) |
| Promissory note given by the investor directly to the NCE | Must be secured by the investor’s own assets; NCE assets may not be used as security | All requirements of 8 CFR 204.6 for “indebtedness” apply; rarely used in practice |
The last row calls for particular care: a loan secured by the assets of the NCE or the job-creating entity (JCE), or by the future returns on the investment itself, is not acceptable. Likewise, any arrangement in which the NCE, JCE, regional center, or an affiliate lends to the investor directly undermines the “at risk” requirement and should be avoided. The EB-5 Reform and Integrity Act of 2022 (RIA) also set out statutory principles for gifted and borrowed capital, including good faith and the absence of any intent to circumvent the investment requirements; the exact text in INA 203(b)(5) controls.
Rule four: the capital must still be at risk
Borrowing does not change the requirement that the investment be at risk. Once the loan proceeds are contributed to the NCE, they face the same commercial risk as the investor’s own money; the investor’s obligation to the lender is a separate legal relationship. Any arrangement that ties loan repayment to project distributions, or in which the project sponsor promises to repay the loan on the investor’s behalf, crosses both the “at risk” and the “guaranteed return” lines at once.
Document checklist
- Loan agreement naming the investor as borrower and stating the amount, interest rate, term, repayment method, and default provisions; terms roughly consistent with market conditions are more credible
- Disbursement records: the lender’s outbound statement and the investor’s inbound statement
- For a mortgage or other secured loan: title to the collateral, valuation report, registration of the security interest, and source-of-funds documents for the collateral at the time it was acquired
- For a third-party guarantee: guarantor’s identity documents, proof of relationship, guarantee agreement, and source documents for the pledged assets
- For an individual or non-financial lender: the lender’s complete source-of-funds documentation
- Evidence of the investor’s repayment capacity: income verification, tax records, asset schedule
- Repayment records to date, if repayment began before filing
- Complete path of the loan proceeds from the investor’s account to the NCE escrow account
- Currency exchange and remittance records, where applicable
- A cover memorandum from counsel summarizing the loan structure and why it satisfies Zhang and 8 CFR 204.6
One final point: the loan agreement should be dated no later than disbursement. An after-the-fact agreement is not automatically unacceptable, but it must be explained in the cover letter and carries less weight.
Key takeaways
- Loan proceeds are qualifying EB-5 capital; Zhang v. USCIS (D.C. Cir. 2020) confirmed that the loan need not be secured by the investor’s own assets.
- The investor personally must be the borrower with primary repayment liability, and should have repayment capacity commensurate with the loan.
- If the lender is not a licensed financial institution, the lender’s source of funds must be documented as thoroughly as a gift donor’s.
- Loans secured by NCE or JCE assets or by investment returns are not acceptable, and loans from the project sponsor or its affiliates undermine the “at risk” requirement.
- The core documents are the loan agreement, disbursement records, proof of repayment capacity, collateral or guarantee documents, and, for a non-bank lender, the lender’s source of funds.