The following is a transcript of the Business Brokerage Press Webinar “INDUSTRY VETERANS, EXPERTS & UPDATES WITH PATRICK FINDARO“
Who Foreign Buyers are and what are they looking for
Tell you a little bit about who the foreign buyers are and what they’re looking for. And then what are some of the attributes to attracting foreign buyers to your business listings. And then how to properly vet foreign buyers to maximize your time and the seller’s time, essentially qualifying these buyers before you start allocating too much time and resources to their inquiries and to their business buying process. And that’s a natural segue in terms of the timeline involved from fielding a lead to closing a business purchase with a foreign buyer
Vetted Biz and Visa Franchise
So first off, who is Vetted Biz, who am I? Our firm also Visa Franchise
? So, my name is Patrick Findaro, again. I’m the co-founder of two companies Vetted Biz and Visa Franchise, with my brother, Jack Findaro. We started Visa Franchise five years ago with the sole purpose of finding and analyzing franchises for foreign national investors. Principally, through the E-2 Investor Visa, which I’ll go through on the next slide. What happened was we were covering a very small part of the market for foreign investors for the E-2 Visa, because four to five times as many foreign investors would buy existing businesses. And for Visa Franchise, we only act in franchises and as a franchise consultant. So we saw a niche in the market to provide a platform for would-be business buyers as not just Americans but also foreign buyers.
So right now, Vetted Biz, a lot of the traffic to our platform on businesses and franchises is from foreign buyers. However, as we continue to produce content and increase our listings, we’re starting to see more and more American users on our site. We’ve gone through over 1 million business data points that includes over a million SBA 7(a) loans to compare them across different industries, as well as comparing non-franchises to different franchises within industries to see which ones have the best loan success ratio.
We seek to bring transparency to potential business owners as they navigate the process of buying a business, as well as to provide business brokers and franchisors with the initial vetting of buyer leads. I was talking to Ron and George earlier that we have had some clients at Visa Franchise that decided to focus more on the franchise route because they were reaching out to different platforms, mostly entering a contact directly with the business seller and not through a professional business broker. And they would get…the information that was on the listing was not information they would receive. So they grew quickly disheartened and then wanted to focus on franchising or a startup business. So with Vetted Biz, we want to provide as much transparency as possible in terms of what opportunities are available. And right now, there are plenty, especially given the pandemic per se.
So who are the foreign buyers?
First, you have strategic buyers, which those could be the ones seeking the L-1 Visa, and then later on or immediately with EB-1C Green Card. These are generally foreign corporations looking to enter new markets, expand their product offering, perhaps enter a new vertical. Initial investment can range quite a lot, $300,000 to well over a million. A requirement to get the EB-1C visa is that there needs to be a certain hierarchy within the organization. So essentially this foreign executive needs to be a manager of managers and usually 15-plus American jobs will do the trick. And this can be a combination of full-time and part-time jobs. U.S. business should have $80,000 plus and net income and or net current assets from last year’s tax returns. And then this is less concerning to the business broker and business seller, but just important to keep in mind that these foreign corporations should be substantial to be able to transfer an executive, i.e 2 million-plus in revenue and 30 plus employees.
So essentially for the L-1, EB-1C, the foreign executive seeking visa, the visa it needs to be an executive manager that’s there to direct and develop the U.S. enterprise. They need to be actively involved in the business. We see a lot of these clients and a lot of interest coming from countries that do not have the E-2 Investor Treaty. The [inaudible 00:05:17], Brazil, Russia, India, China, Vietnam. This has become a more viable and more popular alternative for foreign entrepreneurs and foreign executives to move to the U.S., as the EB-5 investor program, which was in the news. It was $500K, now, it’s $900,000 real estate investment. It has been severely backlogged for many nationals anywhere from 3 years to 15 plus years for Chinese petitioners. So, you know, keep in mind, I am not an immigration attorney. My background is in finance. It’s very important that the business buyer is always working alongside an immigration attorney, helping them with the petition. If you hear about a business buyer that doesn’t have an immigration attorney or is working with some consultants to file the visa work, shy away, that’s a huge red flag.
Buyers that require more operational support
The second category, you could say lifestyle and/or financial buyers, they might prioritize working less hours over getting more income from the business. This could be for a few different reasons. They might have a company abroad that is more worth their time dedicated to that company and makes a lot more money than a business that they’re investing $200,000, $300,000 in. Also at times, the E-2 Visa can service a sort of anchor because the spouses will receive work authorization. So one of the spouses can invest in a small U.S. business while the other spouse seeks employment at a U.S. company. The initial investment amount rangers quite a lot, anywhere from a $100,000 to $400,000. Typically we see an average of $250,000 for an E-2 Visa investment. We have seen closer to a million at times, but this is the general range. It needs to be a substantial investment. Although, the U.S. government does not give exact dollar amount, what substantial investment is. The company should have two to three Americans employed. It can be W2, or it could be contractors. The U.S. business should be viable and profitable. If it’s not profitable and say your client, the business seller is looking to sell it in 2021, 2020 was a tough year for many, many companies, then the business plan is very important because they’re going to present a business plan saying, “Okay, this is the projections. This is what we’re going to do to the business. We’re going to inject for their capital. We’re going to grow up this way. And the consequences are going to look a lot more at the business plan, should that U.S. business not be initially profitable.”
And then it’s important to stay close to these foreign buyers. So you first might represent the seller. But a lot of these foreign buyers after two years, three years, they decided they want to move back home. Or perhaps the spouse was able to secure a green card, or they were able to get a green card in some way, and they no longer need that small business as the anchor for the E-2 Investor Treaty Visa. So there is a possibility, a pretty sizable possibility that you could also represent them in selling the business at a future point. And fundamental for the E-2 Investor Visa, is that the foreign buyer must have a passport with a country that the U.S. has a treaty with through the E-2 visa. There’s about 80 countries, Western Europe, every country besides Portugal, a lot of countries in South America, Asia, the next slide we’ll go through some of the top E-2 Visa countries. I wanted to take a quick moment to pause and just see if there’s any questions. If not, I’m happy to keep going through.
What About the EB-5 Visa
Claudio: Quick question. What about the EB-5 Visa?
Patrick: So the EB-5 Visa has gone up an investment amount from $500,000 to $900,000. And although, at Visa FranchiseBusinesses owned and operated by separate entities or investors through contracts with the parent company…
, we’ve had a couple clients over the last five years apply for the EB-5 Visa it’s generally not the best fit for a franchise or a small business. If they’re going to acquire a small business, generally they need to show that the business was struggling and they’re preserving 10 full-time jobs, or they need to create 10 new full-time jobs under a certain period of time. Although, yes the EB-5 Visa is an investor visa I think it’s 90% of the market, plus 95%, invest in real estate projects through regional center structures.
And in comparing to the EB-5 where there’s about 10,000 issued every year, that’s the cap, EB-2 Visa has no cap. Last year, 2019, the last government fiscal year had 43,000 plus E-2 Visas issued across the globe. That’s a 5% increase year over year. And the approval rates remains pretty high at 89%. When you compare that to other non-immigrant visas, the denial rate actually went up for other visas besides the E-2. On average the denial rate is now 26% overall denial rate for non-emergent visas. So it’s a very high approval rate. And it’s quite aligned with Trump’s executive order back from 2017, which these judicators and consulate officers are reviewing and keeping in mind, which is buy American, hire American, buying American products, hiring American workers, invested in the U.S. These E-2 investors are really doing all of that in a very definable manner.