FOREIGN INVESTORS: A Market of Prospective Franchisees

July 10, 2014

Investor visas are paving a new avenue to franchise system growth.

By Alexandra Kruse

When considering the pool of franchisee candidates, there is a growing market opportunity for working with foreign investors. Foreign investors are individuals looking to come to the United States and invest in a U.S. business. This requires additional hurdles on the part of the investor, namely securing an investment visa. The franchise industry is seeing two viable options for foreign investors in the E-2 Treaty Investor Visa and the EB-5 Program. “The E-2 and EB-5 visas open up a world of opportunity to a market of qualified franchisee candidates,” says franchise business consultant Jose Torres of FranNet South Florida. “Traditionally, the franchise industry has worked with first and second generation immigrants, but working with foreign investors is a whole new market and opportunity for business growth.” As the percentage of foreign-born workers in the U.S. labor force continues to increase, studies such as the 2013 Kauffman Index of Entrepreneurial Activity report that the share of immigrant-entrepreneurs in the United States is increasing as well. In 2013, immigrants were nearly twice as likely to start businesses each month compared to U.S.-born individuals. Over a 10-year period, the share of immigrant-entrepreneurs increased from about 19 percent to just over 25 percent in 2013. By better understanding E-2 and EB-5 visas and what investment requirements must be met by the applicants to qualify, franchises can begin attracting and appealing to a new market of franchisees.

E-2 Treaty Investor Visa

The E-2 Treaty Investor visa grants nationals of a qualifying country temporary stay in the United States in exchange for investment in a U.S. business. To qualify for the visa, investors must:

Be a national from a qualifying treaty country (A full list of qualifying countries can be found at the U.S. Department of State website, www.travel.state.gov.).
Invest a substantial amount of capital in a U.S. commercial enterprise, and
Maintain equity ownership and be in control of the business.

Owning a franchise can be a gateway to the American Dream with the help of the E-2 Treaty Investor visa. The visa is seen as a user-friendly option and a good match for foreigners who desire to move to the United States and own and operate a franchise. A substantial investment is typically in excess of $100,000 to $150,000 and may require multiple units. The investment cannot be marginal, must create jobs and show a future capacity to generate income within five years of operation. An E-2 investor must identify the franchise opportunity and be actively working on the business before the visa application can be submitted; this includes securing a lease and signing the franchise documents. Then, an immigration attorney can prepare the visa application package and submit it to the U.S. consular office in the applicant’s home country. “Foreign investors are not your typical executives in transition,” says Torres. “Most have been business owners back home and have made a significant life decision to leave their home country and start a new life in the U.S. Their ability to remain in the country hinges on the success of their business.” Once the petition has been submitted, receiving the visa takes approximately 30 to 90 days. The E-2 visa can be indefinitely renewed for as long as the qualified investment continues.

EB-5 Program

Unlike the E-2 visa, the Immigrant Investor Program, more commonly referred to as the EB-5 Program, is a pathway to permanent residency in the United States and eventual U.S. citizenship. Overseen by U.S. Citizenship and Immigration Services, the EB-5 Program was created in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. There are 10,000 EB-5 green cards available each year, with 3,000 reserved for those who would prefer to invest through a Regional Center. “In New York, we see a high demand for EB-5 investment opportunities, with a large number of EB-5 investors coming from China,” says John Armstrong, FranNet franchise business consultant of New York. “The EB-5 requires a substantial franchise project as the capital investment starts at $500,000.” Though a nuanced process, generally the EB-5 Program requires a capital investment of $1 million in a new commercial enterprise, $500,000 if the business is in a Targeted Employment Area. An EB-5 applicant must also create or preserve at least 10 full-time jobs within two years. Applying for an EB-5 green card is a highly documented process that includes extensive vetting procedures. Similar to the E-2, the business opportunity and investment must be fully developed before moving forward with the application. In other words, the foreign investor must have a franchise agreement, lease agreement and sophisticated business plan to demonstrate the validity of the business. Through the application process, the investor is granted a conditional permanent residence for a two-year period. The condition is lifted when the investor submits a petition for removal 90 days prior to the two-year anniversary of receiving the conditional status. Once approved, the restrictions are removed and the EB-5 investor receives a permanent green card. Franchise consulting specialists like Torres and Armstrong, agree that E-2 rather than EB-5 investors are much more prominent in the franchise industry. The investment level of $100,000 to $150,000 is better aligned with a greater number of franchise concepts in the market. Also, the number of E-2 visas distributed each year is not restricted. “It’s not about finding a better franchisee candidate,” says Armstrong. “Rather, this is an opportunity to reach a new source of clientele that is well capitalized and ready to invest in a business.” The idea of starting a business from scratch can seem daunting to any entrepreneur. For foreign investors looking to establish themselves and their families in the United States through business ownership and franchise opportunities, the E-2 and EB-5 visas are ways to achieve both. Similarly, for a franchisor looking for a franchisee who is entrepreneurially spirited, financially qualified and has past business experience, a foreign investor fits the profile. Whether your franchise is booming or has hit a wall in finding qualified franchisee candidates, it may be time to evaluate how your system could benefit from gaining exposure to a growing market of entrepreneurs.

Alexandra Kruse is marketing and PR coordinator for FranNet. Find her at fransocial.franchise.org.