Tips for Success: SBA Form 413 in Plain Language With Video

Dec 12, 2022

The Small Business Administration and lenders who provide SBA loans ask applicants to complete Form 413 as a required part of the application process. This article gives you clear information about the form that isn’t in financial industry language, and step-by-step guidance to help you complete the form successfully.

What is Form 413 and how is it used?

SBA Form 413 is a Personal Financial Statement. It serves many purposes, depending on what you’re using it for. Form 413 is required if you’re applying for an SBA 7(a) loan or disaster loan. It’s also used to help the SBA determine if you are a disadvantaged business and meet the requirements for their women-owned small business (WOSB) and 8(a) business development program.

Form 413 provides information that gives the SBA lender a complete picture of your personal financial health. This information helps them decide if you have personal funds and/or assets that could be used to pay back your business loan. In order to make this decision, the lender needs to know about the money or valuable property you have access to, and the money you owe now or may owe in the future, also known as your “assets and liabilities”. 

Assets and liabilities come in many forms. Money in the bank, whether a checking, savings, CD, or Money Market account is an asset, but your personal assets can also be:

  • Retirement funds
  • Money others owe you (accounts receivable)
  • Stocks and bonds
  • Cars and real estate
  • Cash Surrender Value of Life insurance

Liabilities include any money you owe now or may owe in the near future:

  • Personal loans and credit cards 
  • Anything you’re paying off by installments
  • Unpaid taxes
  • Mortgages on real estate you own

When you take your total assets and subtract your total liabilities, you calculate your Personal Net Worth. The lenders like to see that the total amount of your assets is greater than the total amount of your liabilities, with enough left over to run your business and pay your loan. 

Key Terms Found on Form 413 & What They Mean

Don’t be intimidated by some of the financial lingo on Form 413! Here are some of the common ones that trip applicants up:

Notes receivable – Total outstanding bills (“notes”) that are owed to you. 

Cash surrender value – This term is under the life insurance line item in the assets section. Cash surrender value is the amount of money you would receive from the life insurance provider if you were to cash in your policy before it matures. It will be less than the full value of the policy, but could be used to pay your loan balance if you default.

Notes payable – The opposite of notes receivable, this is the full amount of debt you owe to others.

Contingent liabilities – A contingent liability is a liability that may happen in the near future but hasn’t happened yet. Of course, these can’t always be predicted, but you should include anything you know about. An example is a pending lawsuit—if you were to lose the suit, how much would you have to pay? Another common example is a product warrantee you provide to customers when they buy bigger ticket items. If the customer were to cash in the warrantee, how much would you pay out?

Endorser or co-maker – Under the box for contingent liabilities, this box asks for any debts that you’ve cosigned. For example, if you cosigned on your child’s car loan and they default before it’s paid in full, you are liable for that bill. This is a contingent liability, because you may never have to pay that bill, but it’s possible. 

Step-by-Step Video Instructions