Port of Entry
Foreign franchisees find path to green card through EB-5
New prospects for U.S. franchisors are coming from international locales, and they’re risking capital at growing rates in order to build a new home. Here’s how both ‘zors and ‘zees can make the program work.
When the Miami Heat began the quest in late October at American Airlines Arena for a fourth NBA title, it also ignited a new journey for Zhijun Mao. The Chinese native invested $550,000 to open a YoBlendz frozen yogurt franchise at the home of the defending champions.
Zhijun Mao invested $550,000 to open a YoBlendz franchise through the EB-5 program.
He also became Exhibit A in the quest to attract foreign nationals to invest in American businesses, a fast-growing trend.
YoBlendz was the franchise Mao wanted, he says, because the company understands foreign investors’ needs. While attending college in New York, Mao received guidance on how to buy a franchise from Christine Nocciolo, a franchise specialist at FranNet of New Jersey/New York. He moved to Florida and acquired the business in May 2013 after his parents sent him the money.
Mao was surprised to learn YoBlendz is an EB-5 participant. The EB-5 program allows permanent residency to an immigrant who invests $500,000 to $1 million in a new U.S. commercial enterprise that creates or preserves 10 full-time jobs for qualifying U.S. workers.
Another program, known as E-2, allows foreign entrepreneurs from treaty nations to invest a substantial amount in a business in the United States, without guaranteeing permanent residency. The investor is initially granted a two-year stay, but must apply for an extension to stay every two years. The investment can run from $100,000 to $500,000.
A brisk rate
About 6,678 EB-5 visas were issued to immigrants from more than 220 countries for U.S. citizenship in 2012, nearly six times more than the 1,099 in 2008, reports the U.S. Department of State.
Alex Gomez and his wife, Norma, left, and FranNet’s Cesar Cepeda at Gomez’s ProCuts store.
For E-2 visas, 31,942 were issued to nationals from about 80 treaty U.S. countries in 2012, up from 28,588 in 2008. The figures are from across the globe, including Africa, Asia, Europe, North America and South America. China, by far, had the largest number of EB-5 visa recipients last year, with 5,683.
The U.S. Citizenship and Immigration Services estimates a minimum of 49,000 jobs have been created and more than $6.8 billion has been invested during the fiscal year ended September 30, 2012, through the EB-5 program since its inception in 1990.
Given that franchising in the U.S. is new territory for immigrants, USCIS Press Secretary Christopher Bentley advises these investors to do diligent research before taking the plunge.
Mao is going through the EB-5 program and hopes to get a visa in the next three years. Until then he’s using a conditional green card to conduct business in this country.
“Even though this is not my mother country,I love it the most,” he says.
Edgar Rahn, a Venezuela native, at his CPR franchise.
Adam Ogden, founder and CEO of South Florida-based JuiceBlendz and YoBlendz, says they started an EB-5 program in February 2012. He says the program gives a franchisor the opportunity to expand its brand by partnering with EB-5 investors to open joint-venture locations—new stores the company normally would not open through traditional franchising.
He says YoBlendz has opened six locations with EB-5 investors and plans to open another eight by the end of 2014. The franchisee and the company split the expenses and profits of the locations 50-50.
As of late October, YoBlendz and JuiceBlendz have more than 20 franchises including those owned by investors in the EB-5 program.
“It’s a unique way to develop franchise relationships,” Ogden says.
Venezuela native Edgar Rahn invested roughly $200,000 to open a CPR–Cell Phone Repair franchise in March 2013 in Miami. He was impressed by the firm’s business model and is counting on strong consumer and business demand for those services. He plans to open two more Miami locations.
He’s been in the E-2 program since last December and plans to run his U.S. business until returning to Venezuela someday, where he’s also an entrepreneur. Political instability in his home country prompted Rahn to invest in the United States.
Jeremy Kwaterski, president and founder of CPR–Cell Phone Repair, says his company has worked with consultants representing foreign nationals using the EB-5 and E-2 programs for two years. The Orlando, Florida-based firm does on-premise repair of cell phones, tablets and other electronic devices.
CPR stands for Cell Phone Repair, and does on-premise repair of cell phones, tablets and other electronic devices.
CPR plans to launch its own E-2 and EB-5 programs in 2014, Kwaterski says, making it proactive instead of reactive in recruiting foreign national franchisees. He says those franchisees, including some from places like Colombia and Venezuela, have committed to opening about 12 locations in the Miami market.
The program would allow CPR to expand its footprint in the U.S. and abroad. “We would like to market our brand to this segment because it makes a lot of sense,” he says.
FranNet of South Florida consultant Jose Torres, who advised and helped Rahn open his CPR franchise, calls foreign nationals “the bestkept secret” for U.S. franchisors because they are a new source of prospects franchisors may not have otherwise been able to reach.
Plus, these types of operators can offer franchisors potential growth opportunities because they often have the capital themselves to open new locations. Torres figures a third of his business comes from foreign nationals who aspire to become U.S. franchisees, working with immigrants from places like Mexico, Brazil, Argentina and Central America. He estimates he assists about 12 foreign nationals a year open various franchise brands including Meineke, Batteries Plus Bulbs, MAACO, Elements Therapeutic Massage, Great Clips and CPR.
“I not only see the trend increasing, but growing at a faster rate than previously,” he says.
Learning the ropes
Still, industry pros such as FranNet consultant Cesar Cepeda of McAllen, Texas, contend foreign nationals face challenges, including learning how to do business in the U.S. There’s a big difference in how wages and taxes are paid, as well as how government regulations are handled, in the U.S. as opposed to abroad.
“It’s very important that you work with a professional who can guide you through some of the difficulties that may pop up,” Cepeda says.
A co-branded JuiceBlendz/YoBlendz store.
Alex Gomez worked with Cepeda to open a ProCuts franchise, a sports-themed hair styling salon mainly for men, in McAllen, Texas. He invested about $220,000, plus additional working capital, to open his first location. He hopes to open two more locations in the state. He is taking steps to apply for an E-2 visa and eventually hopes to gain permanent residency under the EB-5 program.
The owner of a jukebox business in Mexico, Gomez opened a franchise in the U.S. to gain citizenship, provide safety for his family and escape the growing violence in Mexico. “There’s great opportunity to grow for business and personal reasons in this country,” he says.
ProCuts is among several franchise brands affiliated with Minneapolis-based Regis Corp. Kurt Landwehr, vice president of franchise development at Regis, says while Regis Franchise has no formal program aimed at E-2 or EB-5, the company is happy to work with lawyers or franchise brokers who represent qualified franchisees.
That always makes good business sense, he says.
How to set up an EB-5 program
If you are a franchisor looking into establishing an EB-5 program, Adam Ogden of YoBlendz suggests you consider these factors:
1. Evaluate your company’s business model to determine if it creates the number of jobs required to qualify for the EB-5 program. Job creation is a main factor the U.S. Citizenship and Immigration Services considers when it reviews an application.
2. Speak with an immigration law firm that specializes in setting up programs for business owners to qualify for EB-5.
3. Ogden says the approval process can take six months to a year to complete and costs about $100,000.