Navigating Partner Buyouts with Ease: Utilizing the SBA 504 Program – A Case Study of Cerreta Candy

In the dynamic landscape of family businesses, partner buyouts can be complex endeavors. However, the Small Business Administration (SBA) offers a solution in the form of the SBA 504 program, which can provide financing to facilitate partner buyouts for real estate holdings. In this article, we will explore the SBA 504 program in the context of partner buyouts, using the real-life case study of Cerreta Candy, a cherished confectionery business located at 5345 West Glendale Avenue, Phoenix, AZ. 

Understanding the SBA 504 Program 

The SBA 504 program is an invaluable financing option designed to assist small businesses in acquiring fixed assets, such as commercial real estate and equipment. Offering long-term, fixed, low-interest loans, the program is ideal for entrepreneurs seeking to expand their operations or to gain stability by switching from leasing to owning. What many people do not realize is that it can also help with partner buyouts.  

Cerreta Candy: A 50-Year Legacy 

Cerreta Candy, a 50-year-old family business, holds a special place in the hearts of its Arizona community. Cerreta Candy was founded in 1968 by Jim Cerreta Sr., who learned candy production from his father-in-law, and eventually passed the skill on to his children and grandchildren. 

This confectionery enterprise delights customers with its handcrafted chocolates and sweets and sells over 400 pounds a chocolate on an average day. They even offer tours of the candy-making facility at 5345 West Glendale Avenue in Phoenix, AZ, making Cerreta Candy an iconic local establishment. 

A Family Transition and Partner Buyout 

Six siblings had ownership in the business. However, Jerry Cerreta, who had been leading the company alongside his wife and son, brought a deep commitment to carrying on the family legacy. A commitment that wasn’t shared with his siblings.  

Cerreta Candy undertook a significant milestone as Jerry stepped forward to buy out the remaining siblings’ ownership stake in the business as well as the building the business was located in.  

The SBA 504 Program: Enabling a Seamless Buyout  

Obtaining financing for partner buyouts through traditional methods can pose challenges. The process is often intricate, and the terms may discourage business owners from pursuing this route. 

However, when it comes to bidding farewell to a partner, an equity buyout loan emerges as one of the most favorable options. For the majority of business owners, it is incredibly challenging to raise the necessary funds independently. 

Seeking support to facilitate the partner buyout, Jerry turned to Chris Bane with TMC Financing, Arizona’s top Certified Development Company (CDC). CDCs are certified by the SBA to guide borrowers through the loan process, and administer the 504 loan. Collaborating with Bane and the TMC Financing team, Jerry strategically structured the buyout plan, ensuring a smooth transition while preserving Cerreta Candy’s heritage. TMC’s expertise and involvement proved instrumental in securing the necessary financing and streamlining the entire process. 

“I was delighted with every facet of the transaction,” states Jerry. “The process was smooth and each person I dealt with was efficient and helpful. Getting this deal done is a huge relief.” 

Benefits of Utilizing the SBA 504 Program for Business Transitions  

  • Favorable Loan Terms: The SBA 504 program offers below-market interest rates, fixed for 25 years, surpassing the terms typically offered by conventional loans. This stability ensures predictable monthly payments and minimizes financial strain during the buyout process. 
  • 90% Loan-to-Value: Partner buyouts often require substantial By leveraging the SBA 504 program, a business owner can access up to 90% of the building’s value.   
  • Flexibility in Fund Utilization: In addition to the partner buyout, the funds obtained through the SBA 504 loan can be utilized for facility improvements.
  • Access to Expertise and Guidance: CDCs provide expertise, guidance, and support, streamlining the buyout transaction and ensuring compliance with program requirements.

Support for Small Businesses: The SBA 504 program is specifically designed to assist small businesses in their growth and development. By utilizing this program for a partner buyout, business owners can leverage the resources and support offered by the SBA, promoting the long-term success and stability of their enterprise. 

Partner buyouts can present unique financial challenges, but with the assistance of the SBA 504 program, entrepreneurs like Jerry Cerreta can navigate the process with confidence.  

As demonstrated by Cerreta Candy’s case study, the SBA 504 program offers favorable loan terms, reduced equity injection, flexibility in fund utilization, access to expertise, and support for small businesses. These benefits make it an attractive option for business owners looking to finance partner buyouts.