Recently, I had a nice chat with a foreign national investor who had their sights set on purchasing a business in the United States and applying for the highly sought-after E-2 visa. They were eager to understand if their business venture and investment aligned with the visa requirements. In this post, I’ll discuss this investor’s plan and delve into the potential challenges they might encounter during the E-2 visa application process.

The planned investment 

Let’s dive right in and take a close look at the investment. Our foreign investor had their eye on acquiring an automotive repair business. This establishment had a two-year track record, employing three full-time staff members. The business was turning a profit, and the investor had ambitious plans for expansion. The asking price for the business was set at $80,000. To sweeten the deal for potential investors, the seller was willing to accept a down payment of $50,000, with the remaining $30,000 to be financed.

The challenges of using seller financing for the E-2 visa

Now, the overall cost of the business might raise a few eyebrows. However, this alone might not be a deal-breaker. In fact, numerous clients have achieved success with investments below the $100,000 mark. However, it’s worth noting that investments of this magnitude often come under closer scrutiny from the U.S. government.

While the business cost presents its own set of challenges, the primary stumbling block here revolves around the concept of seller financing in light of the E-2 visa’s investment requirements.

The E-2 visa’s substantial investment requirement

The E-2 visa requires a substantial, “at risk” investment. To determine if an investment is sufficient, the government uses a proportionality test. In simple terms, they evaluate the cost of the business against the financial commitment already made. Here’s a key excerpt from the U.S. Foreign Affairs Manual:

The lower the cost of the business, the higher a percentage of investment is required.

The manual goes on to explain…

There are no bright line percentages that exist for an investment to be considered substantial.  Thus, investments constituting 100 percent of the total cost would normally qualify for a business requiring a startup cost of $100,000, for example.  At the other extreme, an investment of $10 million in a $100 million business may be considered substantial, based on the sheer magnitude of the investment itself.

Given the business cost is under $100,000, there’s a concern that the U.S. government could decline the visa application on the basis of the proportionality of the investment to the overall cost. If the total investment were larger, say $500,000, and the investor committed $250,000, with the rest financed by the seller, the concerns would be less pronounced. However, with a business that costs $80,000, a committed at-risk investment of $50,000 might not suffice.

The potential solution 

Now, what’s the workaround in a scenario like this?

One option involves considering alternate forms of financing. The foreign affairs manual discusses permissible options. It says…

Only indebtedness collateralized by the applicant’s own personal assets, such as a second mortgage on a home or unsecured loan, such as a loan on the applicant’s personal signature may be included, since the applicant risks the funds in the event of business failure.

However, it’s important to note that the E-2 visa doesn’t permit loans or debt secured by the assets of the U.S. business. The manual states:

Indebtedness such as mortgage debt or commercial loans secured by the assets of the enterprise cannot count toward the investment, as there is no requisite element of risk.  For example, if the business in which the applicant is investing is used as collateral, funds from the resulting loan or mortgage are not at risk, even if some personal assets are also used as collateral.

Conclusion: Seller financing for the E-2 visa

To sum it up, using seller financing for the E-2 visa can be tricky terrain to navigate. While there might be situations where it could be viable, it’s important to proceed with caution.

If you are interested in the E-2 visa route, I highly recommend that you reach out to one of the many amazing E-2 visa lawyers that you can find across the globe who can help you navigate this complex landscape.

I hope this was helpful. Thanks for your time!