SBA Form 413 explained: the personal financial statement lenders require

Why lenders require a personal financial statement

Small business credit is guarantor credit. If the business cannot pay, the guarantee is what the lender collects on, so the guarantor's financial condition is underwritten with roughly the same care as the company's.

The statement answers three questions. Is there liquidity, meaning cash and marketable securities available to cover the equity injection and to absorb a slow quarter. Is there net worth, meaning assets that could be reached if the guarantee is ever called. And are there outside obligations, such as another business, rental property, or a large personal loan, that compete for the same cash.

For SBA files the form also supports program eligibility screening, including the size and personal resources questions and the disclosure of any delinquent federal debt.

What it tells a lender about the business or borrower

How to complete it

1. 1

   Pick an as-of date and hold it

   Use a recent month end and use the same date for every asset and liability. Statements dated more than ninety days back are usually refreshed.

2. 2

   Value assets honestly

   Real estate at realistic market value, not a Zestimate high or a purchase price low. Vehicles and personal property at resale value. Business ownership at a supportable figure, not an aspiration.

3. 3

   List every liability

   Mortgages, HELOCs, auto loans, student loans, credit card balances, tax obligations, and any loan against a retirement account. Blank liability sections invite verification questions.

4. 4

   Complete the contingent liabilities section

   Report guarantees on other business debt, co-signed obligations, and pending legal claims. This section is checked against credit reports.

5. 5

   Reconcile to your credit report

   Pull your own report first. Anything on it that is missing from the form will be asked about.

6. 6

   Sign and date

   Each owner of twenty percent or more submits and signs a separate form. Spouses may need to be included depending on ownership and jurisdiction.

Mistakes that send a file back

• Inflating real estate or business ownership values to raise net worth.
• Omitting a HELOC or a personal guarantee on another company.
• Leaving the contingent liabilities section blank when guarantees exist.
• Reporting a joint account balance twice across two owners' forms without noting it is joint.
• Using an as-of date that does not match the supporting bank and brokerage statements.

Who needs to file one

Every proprietor, general partner, limited partner or stockholder owning twenty percent or more, every managing member of an LLC, and any person the lender requires as a guarantor. Spousal information may be required where ownership is combined or where community property rules apply.

Non-SBA lenders generally require an equivalent personal financial statement on their own form. The data requested is nearly identical, so completing Form 413 prepares you for either path.