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Nora O'Malley covers small business finance and entrepreneurship topics for The Balance. Along with her writing work, Nora is an entrepreneur and consultant who opened an all-tap wine bar in New York's East Village dubbed Lois and owns a sophisticated snack food business Aida. For her businesses, Nora is responsible for finances, marketing, operations, and fundraising. Along with The Balance, her writing has appeared in Thrillist, Insidehook and Vinepair.
Updated on July 30, 2022 Reviewed byRobert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.
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Many startups and small businesses rely on SBA loans to start or fund their ventures. While SBA loans are important tools for many business owners, the application process can be complicated and time consuming. Loan approval requires owners to fill out many forms, and one of the most important is the SBA’s personal financial statement, Form 413. Ultimately, loan approval depends on the applicant’s ability to repay other debt and by extension, the SBA loan itself.
While loan applications can seem daunting, Form 413 can be managed by tackling it with organization and concrete steps. By gathering the necessary information before beginning the form, and making sure the information provided is complete and accurate, Form 413 will become simply another step on your way to an SBA loan. Here’s what you need to know.
Form 413 is one of the most important factors when it comes to approval of an SBA loan. This form provides a snapshot of your personal assets and liabilities, which allows the lending partner to evaluate your ability to repay any extended funds. A business owner’s financial condition can tip the scales when it comes to receiving an SBA loan.
Also called the Personal Financial Statement (PFS), Form 413 allows lenders to see what you already owe, and evaluate your creditworthiness. If your debt-to-income (DTI) ratio is already high, the likelihood of you being able to repay an SBA loan may be seen as low. The SBA also wants to know that if you default on the loan, there is a high likelihood it would be able to recover certain funds from your existing assets. This is why it is important to have all assets and necessary documents accounted for when submitting the PFS. Omitting an asset, such as a retirement fund, could be a deciding factor for a discerning lender.
In its simplest form, the PFS is an assessment of your assets, liabilities, and income that would support any repayment of the SBA loan. To complete Form 413, you will need to provide numbers and supporting documentation for the following aspects of your personal financials:
Most SBA loan programs require applicants to fill out Form 413 in order to gauge eligibility for loan approval. When seeking an SBA loan, however, it is not just the business owner who is responsible for providing proof of credit worthiness to the government. The personal financial statement must be completed by all of the following applicants for the business:
If an owner of the business files a joint tax return with a spouse, the spouse’s assets must also be included in the PFS, as well as those of any minor children.
Tackling Form 413 can be relatively straightforward as long as you take the time to break down the steps and be extremely thorough in the reporting of your financial situation.
One of the most important steps for filling out any loan application, especially for an SBA loan and Form 413 specifically, is to read through and understand the requirements before beginning the process. The PFs are far more involved than simply indicating how much money you have in the bank. Take the time to read through what’s required, and create a checklist of all the amounts you’ll need to know and documents you’ll need to track down before beginning.
The information provided on Form 413 is not based on estimations but an exact and accurate reflection of your assets and liabilities. As such, documentation may need to be provided to substantiate the numbers you provide on the PFS.
Depending on your financial situation, relevant documents include:
While you may not need to turn these over to your lender, it is important to have them on hand and be able to refer to them for accurate figures when completing the form.
All documents should be pulled within a 30-day period from the date of filling out a form. For example, you should not use a checking or savings account statement from more than one month before the date you’ve signed the PFS.
The first step is to fill out the basic information about your business. This is simply the name and location of your business, as well as your name.
The next section requests you account for assets and liabilities. When accounting for your assets, it is crucial to include a complete and accurate picture of both your assets as well as your spouse’s. You’ll want to include the following:
Forgetting to account for any assets may have a negative impact on the outcome of your application, so it is important to take the time to track down any asset or property that could help sway the lender’s decision.
Of course, the next component is to detail all outstanding liabilities. This will allow the SBA lender to evaluate what your monthly debt burden may be before taking on the additional debt from a potential loan. You’ll need to account for:
Here, you will total up your liabilities as well as your assets, then subtract your liabilities from your assets to get a figure for your total net worth.
A low net-worth number does not necessarily mean your application will be rejected. The lenders are looking for the ability to repay, as well as any assets that can support that repayment—not necessarily a high net worth.
In this section, you will detail the income that will help support your creditworthiness. Pull pay stubs and tax returns to support your salary indication. In this section, you can also detail any income from investments, real estate, or any other sources, such as pension, Social Security, etc. You do not need to detail any payments from alimony or child support unless you would like it counted toward your total income. Those, along with any “other income,” should be detailed in the section below.
Contingent liabilities are only applicable if you have the potential for debt if certain conditions take place, such as pending legal cases or judgments. Only detail these conditions if they are likely to occur, and do not include them in your total liabilities used to calculate your net worth.
In subsequent sections of Form 413, you’ll detail any assets and liabilities you may have that require further explanation. If you have a relatively simple personal financial picture, many of these sections may be left blank.
The most important part of Form 413 is ensuring that all figures reported are complete and accurate. In the worst-case scenario, misrepresenting your net worth can lead to fines and legal judgments; in the best case, inaccurate figures could just lead to your loan application being rejected. Using supporting documentation and taking the time to itemize all of your assets and liabilities is absolutely worth it when it comes to supporting your business via an SBA loan.
Once you’ve confirmed everything on Form 413 is accurate, it’s important to sign and date the form and any additional attachments needed to detail real estate or other assets.
While SBA loans can be complicated and time consuming to apply for, being prepared and taking the application step by step can make the process more manageable. When it comes to Form 413, it’s ultimately about showing the SBA that your DTI ratio will allow you to repay the loan or make them whole should you default. Preparing your documents and making sure you’ve tracked down every asset and liability will set you up for success.
The SBA is not looking for a high net worth, but rather to simply understand your monthly debt burden. If your personal financial situation leaves something to be desired, you may want to engage a loan broker or consultant who can help guide you through the process and present your application in the best light.
IRAs and any retirement accounts will be accounted for under the assets section of Form 413. For context, other assets that you can account for on the form include your cash on hand, accounts receivable, and savings account(s).
