EB-5 Visa Petition and using a Promissory Note
The AAO precedent decisions set forth specific standards regarding use of promissory notes. Generally, these standards are consistent with earlier policy guidance issued by the legacy INS, with one exception. Specifically, the legacy INS had taken the position that there was no requirement that the petitioner make all of the required payments on the secured promissory notes within the two-year conditional residence period. A secured promissory note remained a valid contribution of capital even if the payment date or dates were beyond the two-year conditional residence period. The AAO has held, on the other hand that almost all the payments due on the note must be payable and actually completed within the two-year period of conditional residence. Failure to do so would mean that the investor would be ineligible to have the conditional status removed because the alien would not have invested the required amount of personal funds, and the full amount of capital required by law would not have been placed at risk or made available to the job-creating enterprise. A promissory note that is not adequately secured by the alien's personal assets cannot be considered capital placed at risk although it may be considered evidence that the alien is in the process of investing other capital. The investor must establish that the assets securing the note are owned by him or her (otherwise, the petitioner is not placing his or her own assets at risk). The assets owned by the petitioner must be specifically identified as securing the note. The security interest in the asset must be perfected in the jurisdiction where the asset is located and the asset must be fully amenable to seizure by a U.S. noteholder (i.e., the commercial enterprise must be able to enforce the note against the underlying collateral). The underlying collateral must have a fair market value in the amount of the note. When the note is secured by foreign assets, such assets must have a fair market value in U.S. dollars equal to the amount of the note, and the petitioner must establish either that: (1) the laws of the foreign country in which the assets are located would recognize and permit execution of a judgment of a U.S. court with respect to the foreign asset; or (2) the courts of that foreign country would recognize and enforce the promissory note even without a judgment by a U.S. court. The alien must also be able to demonstrate that sufficient assets will be available throughout the two-year period of conditional residency to secure the note (in the absence of a perfected security interest in an asset, an escrow or trust account in favor of the entity may be required). Even if adequately secured, a promissory note must have a fair market value equal to or greater than the amount required in the statute if it is to be considered capital and not merely evidence that the alien is in the process of investing other capital. It is the fair market value of the note, not the face amount, that is controlling in deciding whether adequate capital has been invested. In determining the present fair market value, the schedule of payments under the promissory note must be considered because terms permitting payments in installments will affect the present value of the note (e.g., the present value of five annual payments of $18,000 plus a payment due in six years of $290,000 plus a completed payment of $120,000 would be approximately $375,000 instead of $500,000 applying standard formulas for computing the fair market value of annuities and future payments). Whether or not a promissory note constitutes capital or simply evidence that the alien is in the process of investing other capital, almost all the payments due on the note must be payable and actually completed within the two-year period of conditional residence. If the investment plan does not call for all payments to be made within the two-year period then, by the terms of the investment plans, the alien would be ineligible to remove the conditions on his or her permanent resident status. If the investor does not actually make all payments under the promissory note within this period then he or she would be ineligible to have the conditional status removed because the alien would not have invested the required amount of personal funds, and the full amount of capital required by law would not have been placed at risk or made available to the job-creating enterprise. The alien must infuse new capital into the commercial enterprise and, therefore, he or she is not allowed to apply any profits, proceeds, or interest derived from invested capital toward meeting his or her obligations on a promissory note (the installment payments must come from funds other than those generated by the investment itself). Investment plans that allow an alien to earn a fixed return on his or her investment at the same time that he or she continues to make installment payments on a promissory note are not permissible. The capital infusion requirement is not met when the new commercial enterprise places an alien's cash contribution in a bank account and all or some of the alien's installment payments on a note used as capital derives from the interest on the bank account. Note that the government's position that installment payments on a promissory note must come from funds other than those generated by the investment itself is subject to challenge at least as its applies to the reinvestment of dividends.