Reader Mailbox #2: Which Residence and Citizenship Programs Allow Financing?

A reader asks: Can I use borrowed funds to finance my residence or citizenship by investment?

RCBI jurisdictions, generally, don’t want program participants to use financial leverage to qualify for their citizenship or residence permit. I suspect this is because a) they’d like to have more control over the source of funds and b) they’d like to limit applications to those that can comfortably afford it.

Some jurisdictions expressly prohibit the use of financing (UK Tier 1 Investor, and Malta IIP, for example), while many others don’t make specific mentions of it in their laws and regulations but indirectly discourage it through their vetting practices. Most CIPs require a demonstration of the source of funds and that source can’t be “moneylender”.

Notable exceptions to this rule are Quebec’s Immigrant Investor Program and Bulgaria’s quasi-CIP.

Most programs, furthermore, have a requirement stating something to the effect of “the client must have sustainable means”. If the CIU or processing body isn’t convinced the client has more than enough money to pay for the requisite investment or donation, they will not approve the application.

Of course, even an investor with plenty of means may wish to finance their CIP-investment to offset the opportunity cost of paying for it with otherwise high-yielding working capital. But if a client has only a net worth of, say, US$500,000 and borrows US$150,000 to get Caribbean citizenship for his family, that’s another matter.

A cursory glance at the websites of service providers that provide in-house financing hints at leverage may only be an option for a handful of programs; Bulgaria, Quebec, and Saint Kitts & Nevis.

Some CBI-developers, both in Europe and the Caribbean, offer to finance investments in their own projects and I haven’t noticed any objections to that practice.

Even in the cases where investors are not strictly supposed to borrow money to finance their investments, this is difficult to prevent in practice. If program officials see previous bank statements and recognize that the funds therein did not arise from creditors, an applicant may still borrow money after receiving approval in principle.

The EB-5 program is an illustrative example of the complexities of using credit to fund an application even when it is technically allowed. The hoops through which an investor would have to jump are many, according to Scott Legal P.C.

The loan cannot be secured by assets from the business as the investment amount must be at risk. If the loan is secured by personal assets (such as your home), that is fine but you should be prepared to show the government a promissory note that lists the personal security and the personal security MUST secure the loan. If the loan is from a business enterprise outside the U.S. that you are associated with, you should also be prepared to show board resolutions that the company has authorized the loan.

While USCIS permitted unsecured loans in the past, around 2 years ago, this practice was stopped and unsecured loans are not permitted.

The second reason that a loan could be problematic is that for an EB-5 direct investment a loan may make an examiner feel that the investor is too highly leveraged and would not be in a position to repay the loan given the demands of a start up. As such, you may encounter viability issues with a loan such that the examiner may conclude that you will be unable to create 10 full-time jobs.  This leverage issue will not exist if the investment is in a regional center but it will be imperative to show that you are personally able to pay off the loan.  Also, as your I-526 petition may take over a year to be adjudicated, you should be prepared to show any required loan payments during that period.

Another key issue when looking at both gifts and loans is the EB-5 source of funds requirement.

An Investor must satisfy the government that the money comes from a “legitimate source” and that the money was “obtained through lawful means.” The key theme to meet this requirement is documentation. That is, where did the money come from? How was the money made? Who participated on making the profits? Dollar for dollar accounting is not required but in order to fulfill this requirement you must often provide:

    • Personal and business tax returns for five years that show you have made income to support your investment amount
    • Bank Statements
    • Financial Statements if business already exists (audited preferred)
    • Registration material for a business that shows it was a legitimate business
    • Documentation to support the source of the money (eg. if you sold property (home, stock, etc.) you would have to provide all of the relevant details related to the sale)
    • Copies of judgments or evidence of all pending government or other actions against you from any court

If the amount came from the sale of a home or personal property, the documents and money transfers related to the sale should be provided.  The source of funds requirements for EB-5 are extensive and often go far beyond what you will see in the regulations.

If the Money does not come from the Investor, but from a gift or loan, the EXACT SAME REQUIREMENT that applied to the investor now applies to the person who gave the money. As such, if a parent provided a gift, that parent would have to show documentation to show where they obtained the money (eg. tax returns). This can be a particularly difficult requirement given the gift or loan giver’s potential sensitivity to their personal information.

Another reader wants to know: How many people, globally, apply for citizenship by investment every year?

I can only give an approximate answer to this because of the lack of statistical publishing among CIP countries. For residence by investment, we can say it much more accurately.

We don’t have precise numbers for Saint Kitts, Dominica, or Vanuatu – and only rough figures for Jordan and Turkey – but among the rest of the CIPs it was a little under 4,000 last year. Including qualified estimates for the abovementioned jurisdictions, I would say around 8,000 people altogether.

We can say with a reasonable degree of certainty that, historically, close to 40,000 individuals have received citizenships through investment.

To see what hard figures that are available, visit our Data Center.

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