How Do You Spell New Franchisees? Have You Tried EB-5?

U.S. franchisors are increasingly looking abroad for opportunities, setting up operations in franchisor-friendly countries. But an increasing number of franchisors are now looking overseas for franchisees to open new units in the U.S. Chalk it up to increasing awareness of the federal EB-5 visa program. And for foreign nationals seeking U.S. citizenship, the EB-5 program offers a way to obtain a green card - if certain conditions are met, most notably providing 10 or more full-time jobs within a 2-year period.

What is the EB-5 program?

The EB-5 Immigrant Investor program was created by Congress in 1990 to stimulate the U.S. economy by creating jobs and attracting foreign investment. It is administered by the U.S. Citizenship and Immigration Services (USCIS). In 1992, some EB-5 visas were set aside for investors in Regional Centers designated by the USCIS.

What is a Regional Center?

The USCIS defines a Regional Center as "any economic entity, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation, and increased domestic capital investment." Regional centers can be publicly owned (by a city, state, or regional economic development agency), privately owned, or be a public-private partnership.

Financial commitment

An EB-5 investor must invest a minimum of $1 million - unless their investment is in a Targeted Employment Area (TEA): a rural area or area of high-unemployment designated by USCIS. Regional Centers funding projects in TEAs can accept a minimum of $500,000 from an EB-5 investor.

Job creation requirements

An EB-5 visa applicant must create or preserve at least 10 full-time jobs for qualifying U.S. workers within 2 years of their admission to the U.S. as a conditional resident (or under certain circumstances, within a reasonable time afterward).

Who's using it?

Use of the program is growing in recent years. In 2013 6,343 foreign nationals applied to the EB-5 program, up slightly from 6,040 in 2012. But in 2006 the number was only 470, according to the data from USCIS, which estimates that as of September 2013, the program has raised more than $8.6 billion and has created about 57,300 jobs (as reported in the Wall Street Journal). The article noted that franchise brands participating in the EB-5 program include YoBlendz, Elements Therapeutic Massage, and Battery Giant. And a franchisee organization, Florida Restaurant Franchise Group, is using the EB-5 program to expand its Twin Peaks holdings.

According to reports, the majority of the applicants are Chinese, with growing interest from Latin America. This past March, for example, FranVest Management undertook an 11-day, multi-city trade mission to China to promote its FranVest America Program, a proprietary direct investment EB-5 program. "Our mission is simple," said Peter Sorensen, global business development specialist at FranVest: "create American jobs while giving those who wish to invest in America a clear and transparent method to do so."

Why use it?

For all the usual reasons: to help funding in tough lending times, to broaden your franchisee base, and to expand the brand and bring needed money into the system. The EB-5 program can work for concepts that 1) cost $500,000 or more to get into, or 2) for less costly concepts, to sell packages to reach the $500,000 threshold.

Some caveats

  • You may find financially qualified franchisees, but do they have experience as an operator, or in your industry? One solution would be to require the foreign investor to pair with an experienced, qualified operator.
  • Be very careful with your due diligence. Find a reputable EB-5 attorney. USCIS reports to Homeland Security.
  • Unless the new unit is in a specified area, it will require a $1 million minimum investment.
  • Losing the franchise. Unless the investment creates at least 10 new jobs within 2 years, the EB-5 investor must return home, creating a resale event.

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