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Foreign Investors Want Your Business - Myths Vs. Fact

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“A friend of mine’s 12 year old kid sold his money losing lemonade stand -- excluding the lemons - for $1 million to some foreign investor who just wanted a green card.”

Sure, and he wins at slots every time he goes to Las Vegas.

The above is a (slightly) exaggerated version of a popular myth about foreign investors.  This article debunks this and other myths, and describes the actual role and importance of foreign investors in the sale of US businesses. 

Disclaimer:  The generalized advice on this page must not be relied upon by anyone seeking an investment visa.  Consult a qualified immigration attorney, or we can provide referrals.

Myth:  Foreign investors will pay crazy prices for any business just to get a US visa.

Facts:  
Foreign investors will generally pay a modest (typically 10-15%) premium above the fair market value of a business.  The premium is to compensate for the 2-3 month delay the seller must endure waiting for the investor visa to be approved, as well as the risk the visa won’t be approved.  There is simply no reason for foreign investors to pay crazy prices for businesses when there are tens of thousands of fairly priced businesses for sale at any given time that would qualify the investor for a visa.

Myth:  Most foreign investor visas are for green cards. 

Facts:
The vast majority of foreign investor visas are E2 visas, which do not give the investors “green cards” or permanent resident status.  E2 visas give the investor and his/her family a right to live and work in the United States as long as the investment is maintained or rolled over into another qualifying business.  It’s not uncommon for E2 investors to stay 20-30 years or more, but they are not granted permanent resident status and their children generally must leave when they become 21 years old. 

Holders of “green card” visas are allowed to stay indefinitely (with certain limitations and restrictions), as are their children.  To earn a green card through an investment, the most common vehicles is the EB-5 visa.  The number of EB-5 visas available annually is limited to 10,000, and they are much harder to get approved than E2 visas.

Myth:  To qualify for an investor visa via business sale, the purchase price must be $1 million dollars or more.

Facts:
To earn an EB-5 “green card” visa, the typical minimum investment is $1 million.  But this is not a hard and fast rule.  In “target employment areas” with high unemployment or rural areas an investment of $500,000 will suffice.  In some designated regions the government considers the financial impact the business purchased will have on suppliers as well.  The government does not consider only the total investment but also preservation and creation of jobs and other factors.

E2 visas, on the other hand, can be earned with investments as little as $75,000 to $250,000, with the exact amount varying substantially by the nationality of the investor.

Myth:  Mainland China is the #1 source of investor visa buyers due to their huge foreign currency reserves and population.

Facts:
The E2 visa is only available to certain countries, and Mainland China is excluded.  The most common nationality of E2 visa investors in Hawaii are Japan, Korea, Taiwan and Canada.

Myth:  The investor visa process and finding a foreign investor is too much trouble.  It’s not worth the hassle.

Facts:
15-20% of the Hawaii businesses we sell are to investor visa buyers, and as noted above they do pay a premium.  With the weakening dollar and slowing US economy, these investors are becoming ever more important to Hawaii business sellers. 

We have found investor visa buyers to be highly motivated and more likely than US citizens to actually close on a purchase, once a purchase agreement has been reached.  The closing process is just a bit (1-2 months) longer than a typical transaction.  We refer our buyers to highly qualified immigration attorneys that handle all the immigration visa paperwork and hassles, so the seller never has to worry about any of the details.  The approval rate on our immigrant visa transactions is will in excess of 95%.