In the complex world of EB-5 investing, timing is everything. Projects often depend on substantial capital to break ground and create the jobs required by USCIS for immigration benefits.
However, raising EB-5 funds and getting those funds into the project takes time. This can pose a challenge for developers on tight schedules. That is where bridge funding comes into play.
What Is Bridge Funding?
Bridge funding (or bridge financing) is short-term capital used to finance a project until longer-term funding becomes available. This is common in real estate development and startup ventures, and in the EB-5 context, it helps fill the gap while EB-5 capital is being raised and processed.
Sources of bridge funding can include developer equity, bank loans or lines of credit, and private third-party loans. Bridge loans are generally repaid once the long-term financing, such as EB-5 investment funds, has been secured.
How Bridge Loans are Used in EB-5
The timing of raising EB-5 capital is far from precise and even when an investor has committed to a project it can take months to vet their source of funds. These uncertainties can create a delay that many developers cannot afford if they want to maintain momentum on construction or operations.
To address this issue of uncertainty, developers will use bridge funding to initiate construction before the Eb-5 capital is available for their use. The developer will then use the EB-5 funds to take out the bridge loan.
This strategy allows construction to begin immediately, while still preserving the EB-5 investors’ eligibility for job creation credit, provided that USCIS requirements are met. Specifically, bridge financing must have been planned before the EB-5 funds were available, and the capital must be used for job-creating purposes.
Why EB-5 Investors May Prefer Projects With Bridge Funding
While bridge financing may sound like an extra layer of complexity, it often benefits the EB-5 investor. Here is why:
1. Reduced Timing Risk
When a project has already started with bridge capital, investors face less risk from delays in the EB-5 fundraising process. The project is not waiting for their money to begin, this means that progress, and job creation, is already underway.
2. Accelerated Job Creation
Since the project may already be under construction, the jobs required for each EB-5 investor’s immigration petition may be created more quickly.
3. Improved Project Viability
Projects that can secure and use bridge funding often reflect a higher level of financial sophistication. These developers have the creditworthiness and planning capabilities to secure temporary financing, indicating more robust project management.
