The benefits of using a franchise as a direct EB-5 investment
America is the “Land of Opportunity”. Every day, we see immigration as a story on the news. Illegal or legal, rich or poor, America is the promised land for thousands, if not hundreds of thousands of people annually. Foreign Investors and business professionals are among those looking to come to the U.S. in order to create a better life and opportunity for themselves and their families.
America was built on small business and this entrepreneurial spirit is alive and thriving across the country. According to the International Franchise Association (IFA), franchising is a proven business model with 733, 000 establishments, 270 billion in payroll, $674 billion in output, $404.6 billion in GDP, more than 3,900 franchise concepts and the catalyst of 7.6 million jobs.
THE BASICS OF FRANCHISING
Before getting into why franchising is a viable option for an EB-5 investor, let’s define a few words that often get confused by an investor. A franchisor is the company that owns the business model, processes, systems, name and trademarks of the business. A franchisee is someone that buys a business that is part of a chain using the same name, trademarks, product and services. A franchise is the business that allows the franchisee to start a business offered by the franchisor.
The growth and economic impact of franchising is substantial in the U.S. and continues to grow from the early 1850’s, when franchising first began. Franchising is a proven method of knowledge, insight, and wisdom of a specific business model in a specific industry. For most investors, immigrating is a daunting task and owning a business only adds to the stress of acclimating to a new country.
Franchising takes care of that issue by offering, among other things, training, support, operational know-how, and processes to successfully start and continue to operate the business. Owning a franchise allows you to go into business for yourself, but not by yourself. That statement truly resonates with a foreign investor, because, as stated previously, the investor has enough to do in order to settle into a new life.
A FRANCHISE AS A DIRECT EB-5 INVESTMENT
A franchise would most likely qualify as a direct EB-5 Investment. It is not unusual for a franchise to offer double digit returns on an investment as opposed to the single digit return on a pooled investment offering. Even though the USCIS has adjusted the investment level from $500,000 to $900,000, a franchise is still a valuable option as an investor has the ability to buy multiple locations, depending on the franchise, and thereby spreading the risk across locations, or perhaps, with certain franchise offerings, give them the ability to purchase an entire region, such as a zip code, city, or county.
Franchises, by the very nature of the business model, is set-up to meet key factors necessary for a direct EB-5 investment. The entity is an established business model and usually has a proven track record. Most, if not all franchisors, are well capitalized and have the ability to scale in key markets and offer training and support.
The franchise brand usually provides an established product or service which may already enjoy widespread brand-name recognition. This, in turn, allows the franchisee the benefits of a customer base which would ordinarily takes years to establish.
A franchisee also benefits by receiving the systems and processes that have taken a franchisor many years to create and perfect. The franchisee can offer their customer a certain level of quality, consistency, and expectations. Franchises also offer important pre-opening support such as site selection, design, construction, financing, training, and a grand-opening program in order to have a successful launch of the new business.
In order for long term success and to not jeopardize an applicant’s EB-5 status, the franchisor also offers ongoing support: training, national and regional advertising, operating procedures, operational assistance, ongoing supervision and management support, as well as potential discounted prices and bulk purchase discounts with authorized vendors for the franchisee. In certain cases, the franchisor may also provide a management service to operate the locations.
USING FRANCHISING AS AN EB-5 TOOL
The EB-5 visa program, with proper planning, is the perfect vehicle for a foreign student attending college in the U.S. to remain in the U.S. after his or her studies are completed. Foreign investors’ goals of providing a better life for their children can be realized by not only educating the children in the U.S., but also by having the children own, operate, and manage a franchised business here.
The versatility of the EB-5 visa also extends to the availability of purchasing an existing franchise operation and/or purchasing an existing network of existing locations owned by either an existing franchisee or the franchisor. It is not unusual for a franchisor to own and operate “corporate owned” locations to either break into a new marketplace or enter into the market. Many times, the franchisor will need to exit from being an operator of the business and focus on franchisor duties and responsibilities. Again, in this scenario EB-5 becomes the perfect vehicle.
Many franchisors do require an owner/operator with a high level of English fluency and understanding of rules, regulations and laws.
Robert Cresanti, president and CEO of IFA stated that “Investor visa capital is one of many good alternative financing options for franchisees and franchisors, driving small business job creation and creating a path to the American Dream”.
It is also possible for an investor to actually invest into or buy out a franchisor and acquire the brand out right. This works well for the investor that is savvy and has a firm grip on the business model or has the business acumen of how to grow and scale a business in the U.S.
EB-5 and franchising offers many combinations and permutations of a single location, multiple locations, new locations, existing locations, among varied business models and offerings. Two important criteria need to be emphasized. The first is to confirm that a franchisor is willing and able to grow while using EB-5 as a strategy and the other is that the investor (franchisee) is willing and able to follow the rules and regulation as set forth by the franchisor. If so, the direct EB-5 investment route can be harmonious and profitable for both sides.
Small business made America great and small business and franchising continues to make the American dream a reality for many people every day. Welcome to the land of opportunity!