If you’re considering applying for an E2 investor visa, you may have questions about how funding your investment through a loan will impact the overall investment amount. In this blog post, we will delve into these questions and provide you with essential information to help you navigate this step of the E2 visa application smoothly.
Understanding the Regulations:
To comprehend whether a loan can be utilized as part of your investment amount, it is crucial to examine the relevant regulations found at 22 CFR §41.51(b)(1); 9 FAM 402.9-6(B). According to the regulations, the concept of investment involves placing funds or capital assets at risk in the commercial sense with the expectation of generating a financial return. Nonprofit organizations are not eligible for E2 investor status Passive investments are also not eligible for E2 consideration.
Determining Loan Eligibility:
To determine whether a loan can be considered towards your investment, the regulations provide specific criteria. Let’s explore these criteria to gain a clear understanding:
1. Indebtedness Secured by Business Assets:
Mortgage debt or commercial loans secured by the assets of the enterprise cannot be counted towards the investment amount[1]. When the business itself is used as collateral, any funds obtained through loans or mortgages will not be deemed at risk, even if personal assets are also used as collateral.
2. Indebtedness Collateralized by Personal Assets:
Only indebtedness collateralized by the applicant’s personal assets, such as a second mortgage on a home, or an unsecured loan can be included in the overall investment amount. In these cases, the applicant assumes the complete or partial loss of funds in the event of business failure.
Assuming the risk of complete or partial loss of funds, however, does not mean that an investor is required to blindly fund the business without any assurance of E2 approval. In some cases, the funds and assets used to secure the investment can be placed in an escrow account for release or transfer upon condition of E2 visa issuance[2].
Practical Examples:
To illustrate these points further, let’s consider two examples:
Example 1:
Suppose a business costs $100,000, and the investor has $50,000 in cash and $50,000 in equity in their personal home. They obtain a loan secured by their personal assets and invest the total $100,000 in purchasing the business. In this scenario, the full $100,000 amount is considered part of the investment, as the loan is secured by the investor’s personal assets.
Example 2:
The same business costs $100,000, and the investor has $50,000 in cash but no personal assets to leverage, so they seek a $50,000 loan from a bank. However, the bank requires the business itself to serve as collateral for the loan. In this case, only the $50,000 cash investment will be considered at risk, while the $50,000 loan secured by the business will not be counted toward the overall investment amount.
Importance of Investment Amount and Proportionality:
The amount of the qualifying funds invested into the business as weighed against the total cost of such an enterprise, as well as the percentage of investment in relation to the cost of the business are both considerations the adjudicating officer will assess when reviewing the E2 application.
1. Substantiality of Investment Amount:
The total investment amount plays a significant role in determining whether the E2 investment is deemed substantial.
2. Proportionality:
Another vital consideration is the proportionality of the investment amount to the overall cost of the business. The investment should align proportionally with the business’s total cost to strengthen your case.
In our examples above, example 1 demonstrates a stronger case of investment as the $100,000 worth of capital or assets aligns with the $100,000 cost of the business, achieving 100% proportionality. In contrast, example 2 exhibits a weaker case with a $50,000 investment and only 50% proportionality.
It is important to note, however, that percentage of investment is still viewed by officers on an inverted sliding scale. In other words, the lower the cost of the business (think of a small flower shop), the higher the percentage of required investment. On the flip side, a $10 million dollar investment into a $100 million dollar business may also qualify for an E2 given the sheer magnitude of the investment, even though the invested amount is just 10% of the cost.
It is crucial to understand the significance of the investment amount and proportionality when preparing your E2 visa application. Loans secured by the business or its assets cannot be considered part of the overall investment amount for an E2 investor visa. However, personal loans and unsecured loans collateralized by personal assets can be considered towards the investment, as well as other funding mechanisms.
We hope this blog post has provided valuable insights into the use of loans for an E2 investor visa. If you have any further questions or found this information helpful, please let us know in the comments section below. Don’t forget to give us a thumbs up if you found this post informative. Thank you for reading, and best of luck with your E2 visa journey!
