Business Investments – Why E2 Visa Applications May be Denied

Obtaining an E2 visa to allow you to invest and live in the U.S.A. is a great way to realize your dream but you have to be careful that you do not shatter this if you fail to invest in a qualifying business. Not all businesses qualify for an E2 visa so you have to choose the right type of business first with the correct arrangement for financing it. The example below relates to a hopeful E2 investor whose application was turned down.

Mr. Jones, a UK citizen, found a gas station with a suitable price tag of $250,000. He had $100,000 in cash available immediately. The seller, being eager to sell, was prepared to accept the $100,000 as a down payment. Mr. Jones then signed the contract and added a promissory note valued at $150,000. He then used the gas station as collateral for getting a loan. When he put in his application for an E2 visa it was refused by the embassy in London because the loan he would have needed was only 60% of the buying price. This is not considered to be a ‘substantial’ enough investment as laid down in the criteria for eligibility.

To emphasize this point further, if Mr. Singh wants to buy a set of motel units valued at $800,000 and he puts a down payment of $150,000 then sets up a contract with the seller with a promissory note, he encounters the same problems as Mr. Jones as the amount invested falls short of what is considered to be a substantial investment.

These two hopefuls found out the hard way, that even though embassies and consulates do not necessarily adhere to hard and fast criteria, there are some guidelines they do follow. One of these is that if the purchase price falls between $100,000 and $500,000, then the borrowing component cannot exceed 30% financing when the business purchased is used as collateral for the loan. It doesn’t matter what the seller is prepared to accept, as the consular officer makes the final decision.

A further example, but from the profit perspective, is when someone purchases a business, but the taxable annual profits are low, at only $15,000. This will be rejected because the value of the profits is too low and it is classified as a marginal investment. The expectation is that an E2 visa is granted if the business purchased generates more than enough income to support the applicant and his family as well as providing employment for others.

There is another trap a potential investor could fall into if knowledge of E2 visa requirements is lacking and that is what role the potential investor is likely to play in the purchased business. It is essential that the E2 visa applicant can prove that he or she will be actively involved with running the business. For example, purchasing a block of apartments that does not require any daily input by the owner will not get an E2 visa whether the investment is fully paid for or not. This applies to empty blocks of land, too.

In this situation there is no income being generated at the time of purchase and no suggestion that jobs will be created out of the purchase and of equal importance it is not a business concern which needs active management and involvement by the purchaser. This is called a passive investment and does not fit the required criteria for an E2 visa. However, there is nothing to stop the purchase of undeveloped land taking place but unless the land is actively being developed at the time of the E2 visa application then it’s considered a passive investment.