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 a key piece of most SBA loan applications.
- Also known as the Personal Finance Statement, it allows the SBA to evaluate an applicant's creditworthiness and the likelihood they’ll be able to repay any extended funds.
- While Form 413 can be daunting, understanding what the lender is looking for, preparing documents ahead of time, and double-checking that everything is accurate will put you in the best position for approval of your loan application.
What Is SBA Form 413?
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.
What the SBA Personal Financial Statement Includes
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:
- Assets: This includes every personal asset, such as cash, real estate, and retirement accounts.
- Liabilities: This includes major liabilities such as student debt and other loans, monthly installments such as car payments, and contingent liabilities such as legal claims.
- Sources of income: This shows your ability to repay debts and includes your salaries, investments, and any other income streams available to you.
Who Needs To Fill Out the SBA Personal Financial Statement?
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:
- Each proprietor and every LLC managing member
- Every general partner with more than 20% ownership in the company
- Each guarantor on the loan
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.
How To Fill Out SBA Form 413
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.
Study the PFS
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.
Gather the Relevant Documents
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:
- Bank statements
- Tax returns
- Pay stubs
- IRA statements
- Life insurance documents
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.
Fill Out Basic Business Information
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.
Section 1: Compile Assets and Liabilities
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:
- Cash on hand and in banks: Along with cash, you’ll want to account for any savings.
- Any kind of retirement accounts: Search for any old retirement accounts from past employers that may have been forgotten. You can search online with the U.S. Department of Labor, as well as the National Association of Unclaimed Property Administrators.
- Life insurance: If this applies to you, you’ll need to expand on the policies in Section 8 of Form 413, as well as provide documents.
- Stocks and bonds: You need to detail your holdings in Section 3 of the PFS, so you’ll want to access updated values to make sure your asset reporting is accurate.
- Real estate: This is a large component of personal assets, and if you own real estate, this could be a complicated component of the PFS. For Section 4, you’ll need to understand many details about your property as well as add attachments if you have multiple properties.
- Automobiles: Know the market value of all vehicles owned by your family before filling out the PFS.
- Other assets or other personal property: You can detail any other assets that could benefit your application in Section 5 of Form 413.
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.
Account for Liabilities
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:
- Accounts payable: The accounts payable portion reflects any debts owed to anyone other than a bank.
- Notes payable to banks and others: Notes payable is where you detail any loans from banks, lines of credit, credit cards, etc.
- Auto payments: The SBA wants to know about any monthly burdens, such as auto payments. You’ll need the total and the monthly amount.
- Monthly installments: This is where you would account for any other monthly payments such as personal loans or student loans.
- Loans against life insurance if applicable.
- Mortgage payments: These are detailed in Section 4.
- Unpaid taxes: It is important to have the correct documentation for these payments, to make sure the reported figures are up to date.
- Other liabilities: You’ll need to account for any other debts not detailed in these sections. This does not account for monthly living expenses, simply other debts, which will be detailed in Section 7. Most applicants do not fill out this section.
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.
Review for Accuracy and Sign
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.
The Bottom Line
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.
Frequently Asked Questions (FAQs)
What happens if your liabilities outweigh your assets on the personal financial statement for an SBA loan?
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.
Where does an IRA belong on a personal financial statement?
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).