Franchisors in the EB-5 Market
Franchisors looking for a new market in which to sell their franchises have a hidden opportunity with EB-5 investor visas, especially in the direct EB-5 market. The news surrounding EB-5 investor visas has been closely tied to the Regional Center Pilot Program, and has focused on a few cases of fraud, antifraud and integrity measures, and whether to reauthorize the program. What has largely been ignored is the fact that the direct EB-5 visa program does not need reauthorization, has not been tied to fraud, and is stable.
Direct EB-5 investments are rare. However, tied to franchise opportunities, the stability and relative turnkey nature of the business, combined with the investor’s control over meeting employment obligations and financial success provides exactly the right mix for entrepreneurial investors from overseas.
Obtaining an EB-5 Visa
In order to obtain an EB-5 Visa, which results in a provisional green card for 2 years, then a permanent green card if the investor meets his or her obligations and a pathway to citizenship, the investor must invest a minimum of $500,000 or $1,000,000 in a new commercial enterprise resulting in the creation of 10 full time jobs for American citizens or lawful permanent residents. The investor must provide a business plan showing the expected use of the funding, proving feasibility of the business, and the likelihood of creation of at least 10 full time jobs within the requisite 2 years. The investor must complete the appropriate forms, and provide relevant supporting documentation.
Opportunity for Franchisors
Franchisors looking to market their franchises to business savvy individuals who are more likely to succeed in growing the franchisors’ respective brands would find no more fertile ground than business people who have track records of success in business, and have succeeded to the point of having liquid funding available to commit between $500,000 and $1,000,000 to a new enterprise. While not every franchise may qualify due to the investment requirements, selling exclusive territories and rights to develop multiple location within targeted areas will bridge this gap.
Franchisors are in the perfect position to sell these opportunities because they meticulously track the relevant information and are in a perfect position to modify their existing sales and marketing material and business plans to comply with EB-5 regulations. Doing so will greatly increase marketability and will provide the clearest path to successfully obtaining green cards and ultimately citizenship.
For those interested in EB-5 visas, and who are interested in maintaining control over their success, a purchasing of a franchise or franchise rights to a defined area may be a perfect fit and opportunity. First, there are no concerns related to continued reauthorization battles in Congress, and therefore, substantially less uncertainty. Second, the investor’s success is ultimately in his or her own hands. Third, there is a substantially greater likelihood of success due to the franchise model and requirements related to training for franchisees. Fourth, nearly all viable franchises minimal employment requirements meet the standards of the EB-5 visa.
Direct Investment in the EB-5 Industry
Prospective EB-5 investors have been plagued by minimal access to opportunities for direct investment because the industry has built up around selling investment through the regional center model. Almost anyone a potential investor talks to about EB-5 in a foreign country will steer the potential investor toward a regional center investment. Regional center investments are normally a viable means of obtaining a green card and typically are very safe, low risk options. However, such investments have been fraught with concerns related to a handful of bad actors, and far more importantly a continued battle over reauthorization of the program. During the past year and two months, the regional center program has been up for reauthorization three times, and is coming up for an additional reauthorization battle in December, 2016. Many in Congress would like to see the program terminated for a number of reasons, and still more are working to make changes that may shift the focus of investment opportunities. No such uncertainty exists regarding direct EB-5 investments.
However, the difficulty is connecting those with opportunities to those interested in direct EB-5 investments. There are established markets and advisors particularly in China and increasingly in other countries such as Vietnam, which provide access to EB-5 Regional Center promoted projects. No such market exists for direct EB-5 investments. Therefore, making an appropriate connection must be the initial step. Many U.S. based franchisors have a presence overseas, and with appropriate guidance, that presence may be the foothold the franchisor needs. It may also be a nice onboarding spot for potential investors. Creating a direct connection is essential to avoiding the pressure to engage in a regional center transaction that many will encounter when they initiate their investment based immigration search.
To many investors, the certainty of their path to a United States’ green card and potentially citizenship is the key to an investment decision. Many investors are scared away by the uncertainty that Congressional inaction has recently created. This uncertainty does not exist in the realm of direct EB-5 because it was not enacted as a short term “pilot program”, but was instead created specifically to provide entrepreneurs an opportunity to bring their money, their entrepreneurial spirit, and their wealth of business knowledge to the United States in order to create good jobs for Americans. The direct EB-5 is a permanent part of U.S. law, and without drastic changes to immigration law that no politician would support, the visa category will remain available. There is a possibility that the minimum investments will change, but given that minimums have not increased in the 26 years since inception, any increase would likely have little impact on the popularity of the visa category.
Beyond the certainty provided by the direct EB-5, it puts the investor in control of whether he or she receives a permanent green card, and his or her own return on investment. This is the opposite of the regional center program in which receiving a green card is largely the result of economic modeling, whether a project sells all of its units and utilizes all of the funds appropriately, and is entirely in the hands of someone else. For many people, leaving the work to someone else is a good thing, and being able to rely upon indirect job creation based on economic modeling does ease the process. The trade off is minimal return on investment and high fees. The direct EB-5 is different. While the investor must actually create 10 new jobs that he or she can show by producing W-2s, the return on investment is dependent upon the entrepreneur’s abilities, and the soundness of the franchisor’s business model and plan. For business people who have succeeded, particularly in the developing world, success in the United States will require slightly different skills and knowledge, but is attainable, because it will require less creativity in marketing, and there are less barriers to entry / creation of a business.
Success in the Arena of Franchisement
Nowhere is this more true than in the arena of the franchise. An established franchise concept, with appropriate brand recognition, business planning tools and uniformity standards will include substantial training requirements. The training will provide the new franchisee with the tools necessary to succeed. A successful business person in India or Brazil, by way of example, will take the training and build on top of that his or her experience outside of the United States, increasing the likelihood of success. Beyond that, the return on investment (“ROI”) will likely far exceed that which could be obtained even in the most successful of regional center investments.
Not only will the ROI likely dwarf the 1 – 2% an investor may see out of a regional center investment, the fears that many in the migration industry place on investors in relation to creation of 10 verifiable jobs, are greatly reduced in the franchise model. Most established and worthwhile franchises require a minimum of 10 full time employees to operate at their most basic level. Therefore, if one is capable of operating the business and keeping it open for two years from approval of his or her I-526, successfully removing the restrictions on one’s green card is all but assured. Creation of 10 full time jobs by purchasing and operating a franchise business should be substantially easier for someone with a track record of business success in a country like Brazil, India, China, Vietnam, or in regions such as the Middle East and Central America by virtue of the fact that opening and operating a business in the United States requires far less bureaucratic and governmental approvals and oversight. Given the comparatively high ROI, it is well worth the risk to move forward toward a direct EB-5 Investment.
Companies with a solid franchise concept looking to open a new market for franchisees should contact Oppenhuizen Law Firm, PLC to discuss creating marketing materials for foreign business people who may wish to use the franchise as a means to immigrate to the United States in order to educate their children or increase their opportunity to grow their wealth. Further, those interested in direct EB-5 immigration, who may have been encouraged to look only at regional center options should also contact Oppenhuizen Law Firm, PLC.
Oppenhuizen Law is dedicated to making global connections and facilitating migration based on investment and job creation. We are a law firm, and are not registered broker dealers. Therefore, we do not sell securities; however as attorneys and counsellors at law, we are able to guide our clients through the complex process of creating compliant materials, building relationships with prospective franchisees, and helping the prospective franchisees and their families obtain lawful permanent residence in the United States using the EB-5 program.