Direct Investment Vs. Regional Center Investment

In the EB-5 world, most of the focus has been on the sunset of the Regional Center Pilot Program, which is set for September 30, 2016.  It is almost certain that the program will be extended through the passage of a Continuing Resolution, as part of the budget process, but its long-term survival is a difficult political question involving complicated issues and forging strange political alliances.  It is in the country’s best interest to continue the Regional Center Program and to improve it through integrity measures and by ensuring that investors are better informed and represented as to the legal and business aspects of their investment.  Oppenhuizen Law Firm, PLC has blogged extensively on these topics, and would be happy to discuss them with anyone having questions.  

Direct EB-5 Investments

While the fate of regional centers is important to keep in mind, this blog is about direct EB-5 investments.  The EB-5 Investor Visa Program will continue without regard to whether the regional center program continues.  This means that regardless of what Congress does in relation to the regional center program, individuals from around the globe will still have opportunities to invest and create jobs in the United States in exchange for a Green Card, and ultimately a chance at citizenship.  This means a U.S. education for their children, and an opportunity to expand their business interests in the United States.  For an overview of the distinction between Direct and Regional Center EB-5 investments, Asian Journal has an excellent article on the investment program.

Benefits of Franchising

The sector most well suited to the immigrant investor is franchising.  There has been much discussion of franchisors utilizing EB-5 money, even in the regional center program.  However, the sale of a franchise to direct EB-5 investors is a good business move for the franchisor, and a wonderful opportunity for the immigrant investor.

Franchisors seek out entrepreneurial individuals with a strong business acumen, focusing their sales on a specific subset of the U.S. population.  This limits the marketability of their franchises, and ultimately limits growth potential.  Many franchisors have a robust presence in foreign markets, but do not look to their franchisees in the foreign markets as potential U.S. based franchisees.  There is a large and growing population of entrepreneurs throughout the world who have built considerable wealth and are poised to use that wealth to benefit their children and families.  

By its very nature, a franchise is a turnkey business, and if the location and demographics fit, it is a nearly fool proof business opportunity for an immigrant investor.  Failures of franchisees are almost always directly linked to the level of debt that the franchisee takes on in order to fund the venture.  Failure of franchisees is not only a problem for the franchisee, it creates expense and PR problems for the franchisor.  Franchisors seek to avoid the failure of their franchisees, but all of the support in the world cannot compensate for mistakes made by franchisees in taking on too much debt.

The Immigrant Investor

However, if debt service was not a concern, the sales would carry even most fledgling franchises into a future where the initial investment was recouped, and the franchisee was able to earn a good living and build wealth.  This is why the immigrant investor fits the profile of a good franchisee so well.  First, the immigrant investor has been successful in parts of the world in which it is more difficult to succeed.  So they are business savvy, though they will almost certainly need good business and legal advice in order to acclimate to the business culture and legal requirements of the United States.  Second, in the vast majority of the cases, the immigrant investor is bringing in capital amassed over time, and is not taking on debt in order to finance the franchise.  To the extent debt is used, it would be secured by collateral in the investor’s home country, controlled by bank(s) in the investor’s home country, and would not be in a position to force the failure of the business.  Third, the immigrant investor has the ultimate motivation to ensure success; his or her presence in the United States is dependent upon it.  

Many franchises are a great deal for the immigrant investor as well.  Strong franchise concepts will almost certainly require an all-in investment of $500,000 to $1,000,000 including buildings, equipment, required upfront purchases of goods, and the franchise fee.  Further, most strong franchises will require employment of at least 10 full-time employees.  Therefore, meeting the requirements for immigration is easily in reach for properly well-established franchises.  Finally, the business is turn-key, provides appropriate educational resources for the franchisees, provides detailed guides, which if followed will generate success, offers established supply chain relationships, and rigorous clear workflows and training programs.  The systems in place at each well-established franchise, ease the transition from a foreign country.

The investors are readily available, and for franchisors with foreign presence, access to investors is as simple as making contact with current foreign franchisees.  

If you are a franchisor, a lawyer who works with franchisors, or have interest in creating a compliant EB-5 direct investor program to expand your brand, please give me a call or send me an email.  I would enjoy the opportunity to talk with you in greater detail about this opportunity.    

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