Upcoming Events

Office Hours Session 2: The Personal Financial Statement

Thursday, July 9 at 1:00 PM Central, live on Zoom with open Q&A afterward. I am covering everything in this issue live, so bring your deal questions. Save your seat here​

Chicago ETA Happy Hour

Thursday, July 16, 4:30 to 8:00 PM Central at Randolph Tavern, 188 W Randolph Street, Chicago, IL 60601.

Pioneer Capital Advisory is co-hosting alongside Grant Hensel (Entrepreneurial Capital), Alex Hinch (Rejigg), Andrew Hoffman (Search Fund Coalition), and Lisa Forrest and Sarah Andrews (Northwest Bank). Appetizers will be provided, and wine and beer will be sponsored by Northwest Bank. Whether you are just exploring, full-time searching, or already under LOI, come meet the team and other serious buyers. RSVP here​

Madison ETA Happy Hour

Thursday, August 20, 4:00 to 7:00 PM Central at Wisconsin Brewing Company, 1079 American Way, Verona, WI. I am co-hosting this one with my friend Chris Barrett, CPA of Midwest CPA. If you are a current or prospective business buyer, your first 3 drinks are on Pioneer Capital Advisory and Midwest CPA. Register here​

Your PFS Gets Underwritten Too

Here's a pattern I see all the time. A buyer will spend weeks tearing apart the target's financials, building a beautiful model, stress testing every assumption. Then they get to their own personal financial statement and knock it out in twenty minutes like it's a DMV form.

Lenders read it the other way around.

Yes, the business repays the loan. But you're the one standing behind it, and your liquidity, your debt load, and frankly your credibility on SBA Form 413 shape the pricing, the structure, and sometimes whether the deal gets approved at all.

So this week I went back through my inbox and my call notes and pulled the PFS questions that keep coming up. Real questions from real buyers, and I'll give you the same answers I gave them. Everything below reflects the current SOP 50 10 8, effective June 1, 2025.

Deal in Focus: the $650K PFS that verified at $300K

On a recent transaction, a buyer's PFS showed roughly $650,000 in liquidity. Then the bank statements came in during underwriting, and the verified cash was closer to $250,000 to $300,000. Less than half of what the form promised. Keep this deal in mind as you read, because that one gap ripples through everything below.

Two numbers frame the whole conversation

20% or more. If you own 20% or more of the business, directly or indirectly, you're signing an unlimited full personal guaranty. Straight from the source:

I get asked about ways around this all the time. There aren't any, and before you get creative, know that there's a six month lookback. Dropping your stake below 20% right before you apply doesn't work either.

10%. That's the minimum equity injection on a complete change of ownership, calculated on total project costs, and your lender has to verify every dollar of it before they can disburse. The good news is that up to half of it can come from a seller note on full standby, which cuts the cash you personally need to bring.

Beyond those two numbers, here's the principle I want you to internalize:

A buyer who wires every last dollar at closing looks fragile.

Reserves left over after the injection tell the lender you can survive a slow first quarter without missing payroll or a loan payment. And believe it or not, the SOP is actually on your side here.

The credit elsewhere test explicitly lets owners keep reasonable funds set aside for medical expenses, education, and retirement. You're allowed to have a life.

The five things credit officers check first

When your file hits a credit officer's desk, here's roughly the order they read your PFS in:

1. Liquidity. Do you have the injection covered, plus something left over?
2. Source of injection. Is it seasoned, non-borrowed money they can trace with statements?
3. Personal debt service. Can your household survive on the salary you actually plan to take from the business?
4. Net worth composition. How much of your net worth is real and liquid versus optimistic and illiquid?
5. Credit history and contingent liabilities. What have you already guaranteed or co-signed? Form 413 has a dedicated section for this, so they will ask.

Your questions, answered

These are real questions from buyers I've worked with recently, anonymized and lightly edited.

Yes, and this one comes up constantly.

Here's the thing most buyers don't realize:

Form 413 for a 20% or more owner is supposed to include your spouse's assets and any minor children's assets anyway, and the certification requires your spouse's signature when their assets are included.

So what I'd do is put together a consolidated PFS with both of your names, information, and signatures, plus a simple one page addendum mapping out which assets are yours, which are joint, and which are hers. Putting her assets on the form is a disclosure requirement. It is not a guaranty. Those are two very different things. As for when a spouse actually has to sign a guaranty, that's the next question.

"Do retirement accounts count toward my liquidity, or do lenders only care about cash and taxable holdings?"

They count if you plan to use them, either toward the injection or as post-close liquidity you'd genuinely tap.

If they're staying untouched?

I generally tell buyers to leave them out of the liquidity conversation entirely. No reason to invite questions you don't need.

One caveat: Form 413 has a dedicated line for IRA and retirement accounts, so they get disclosed on the form either way. The question is whether they're part of your liquidity story. When my team prepares a financial letter of support that includes retirement funds, we say so explicitly in the letter, so the lender sees the full picture with the right framing instead of discovering it and wondering.

"When you say post-close cash, do you mean cash inside the business or outside it?"

Outside. This trips people up all the time. Working capital inside the business is its own line in sources and uses. When a lender talks about post-closing liquidity, they mean what you personally hold after funding your share of the injection and closing costs. Rough guide: several months of living expenses, plus a buffer that makes sense relative to the loan size.

"What actually counts as proof of liquidity? Are screenshots fine or do you need full statements?"

Either works if you do it right. Full statements with the account number blacked out, or screenshots that show your name and the balance in the same image. What doesn't work is a number floating on a screen with nothing tying it to you.

And fair warning, the bar rises as you go. I've seen underwriters come back and ask for the complete detailed brokerage statements, every page, not the summary, before they'd finalize their read on a buyer's personal balance sheet. Before disbursing, your lender has to document the injection with statements covering at least 30 days showing the funds were available, plus proof the money actually moved.

A gift letter or a promissory note by itself is not sufficient evidence under the SOP. So if family money is part of your plan, get the documentation and the gift tax questions sorted with your CPA early, not at the eleventh hour. I've watched that fire drill happen. It's not fun for anyone.

"When does my spouse actually have to provide a personal guarantee?"

In my experience, three situations, and only three.

One: the combined ownership rule. If your spouse owns a stake in the business, and the combined ownership of both spouses and your minor children hits 20% or more, each spouse guarantees the loan in full. That's the SOP rule, and there's no way around it. So if you're at 15% and your spouse holds 6%, congratulations, you're a 21% household and you're both signing unlimited full guarantees. Run that math before you set up the cap table, not after.

Two: jointly held collateral. If assets you own together are being pledged, think a house with both names on the title, a non-owner spouse has to sign the collateral documents. Here's the part that calms people down: any guaranty secured by that jointly held collateral is limited to your spouse's interest in the collateral itself. It's not an unlimited guaranty of the whole loan. It's their signature acknowledging the lien on their half of the house.

Three: the credit enhancement ask. A lender can request a spouse as an additional guarantor when the deal needs shoring up, and in practice that means cash flow running borderline against the 1.15 debt service coverage threshold. This one is a negotiation, not a rule. A strong deal rarely gets this ask.

Outside of those three, a spousal PG is rare. I would not lose sleep over it. What I would do is map out whose name is on what, the house, the brokerage accounts, everything, before the lender asks. Flag anything sensitive early. The spousal conversation goes a lot better as a planned discussion in week one than as a surprise condition in underwriting.

"Based on my PFS, how big a deal can I actually afford?"

This is the single most useful math you can do before going under LOI, and almost nobody does it. Start with roughly 10% of total project cost as your equity injection. Up to half of that can come from a seller note on full standby. Straight from the source:

Full standby means no payments of principal or interest for the term of the 7(a) loan, documented on SBA Form 155 or the lender's equivalent standby agreement. That cuts your cash need in half right there. Now subtract what's left of your injection from your liquid assets and look at what remains. Is that a real cushion, or is it fumes? Because when the cushion gets thin, that's exactly where lenders start pushing back, no matter how strong the business is. Want to stretch the range? The levers are the ones you'd guess: build cash before close, negotiate a standby seller note, or bring in a partner.

Back to the $650K deal

So how did our Deal in Focus play out? Exactly the scramble you'd expect.

The buyer proposed drawing on a HELOC to fill the hole. The lender pushed back and said they'd rather see the HELOC stay untouched as a backup source than count it toward the deal.

Then family funds entered the conversation, which immediately kicked off gift documentation and gift tax questions that had to be untangled with advisors. And because the lender had put an explicit post-close liquidity condition on the deal, every dollar of the shortfall was threatening not just the injection but the approval itself.

Here's what I want you to take from it. The deal didn't nearly die because the buyer lacked money. It nearly died because the PFS made a promise the statements couldn't keep. Your personal financial statement is not a marketing document. It's a forecast, and underwriting will check it line by line. Write it so the statements confirm it.

Why understating your assets backfires too

Most of the caution around Form 413 is about overstating.

But I also see buyers tempted to go the other direction, usually some version of wanting to keep assets out of view, either to limit what feels exposed under the personal guaranty or just to disclose as little as possible. Two problems with that.

The first one is blunt. Form 413 is signed under a certification, made under penalty of criminal prosecution, that everything on the form is true and complete. Understating isn't a gray area just because the number moved down instead of up. An incomplete picture fails the certification the same way an inflated one does. And the penalties printed right on the form are not subtle: up to five years imprisonment and a $250,000 fine under federal law, up to thirty years and $1,000,000 when submitted to a federally insured institution, plus civil liability under the False Claims Act. I'm not trying to scare you. I'm quoting the form.

The second problem is the one buyers never think about: you're competing for credit, and a weaker looking PFS makes that competition harder.

Picture two files landing on an SBA lender's desk. Same deal, same buyer experience, same purchase price, same structure, every variable identical, except one file shows a stronger personal financial statement.

On the margin, all else equal, the stronger PFS gets financed more easily. Every time. Sometimes that shows up as better pricing. Sometimes fewer conditions, or a faster trip through credit committee. Sometimes it's the difference between an approval and a decline.

Hiding assets doesn't protect you. It just makes you look like a thinner guarantor standing behind the same loan, and you pay for that in the credit decision. The right move is the boring one: report your position accurately and completely, then let your advisor help you frame it. A strong PFS is an asset in your deal. Don't bench it.

The mistakes that slow or kill approvals

Overstating illiquid assets. Value your private business stake optimistically and watch the lender start squinting at everything else on the form.

Forgetting contingent liabilities. Form 413 asks for them directly, and old guarantees and co-signed loans surface in diligence anyway. Disclose them first and control the narrative.

Unseasoned or untraceable cash. Your lender needs at least 30 days of statements plus proof of transfer before disbursing. Move money early, consolidate it, keep the statements. A big mystery deposit with no paper trail will stall your file faster than almost anything.

Zero cushion after close. Technically meeting the injection with nothing left behind it is a credit concern, not an accomplishment.

A stale form. For 7(a), your PFS has to be current within 120 days of submission. Complete it early, then plan on refreshing it before the file goes in.

The 60-second version

• Your PFS gets underwritten as hard as the business. Liquidity, source of injection, personal debt service, net worth composition, contingent liabilities. In that order.
• 20% or more ownership, direct or indirect, means an unlimited full personal guaranty, with a six month lookback. Model where you land after the deal, not before it.
• The injection is 10% of total project costs on a complete change of ownership. A full standby seller note on Form 155 can cover half. The rest is verified, seasoned, non-borrowed cash.
• Spouse assets belong on the form. A spousal guaranty follows ownership and collateral rules, not the disclosure.
• Every number on Form 413 is a promise your bank statements have to keep. Overstate and the deal stalls in verification. Understate and you look like a thinner guarantor while certifying an incomplete form under penalty of criminal prosecution.
• Complete Form 413 before LOI, keep it current within 120 days, season your cash, and disclose proactively. Credibility compounds.

Thanks for reading!

If you're working on an acquisition, or are in the pre-LOI phases, you can book a short, informal call here to meet our team and learn how we can help you.

For pre-LOI buyers ready to explore opportunities: Schedule a meet & greet call​

Already have a deal under LOI and need financing help: Schedule an LOI consultation​

Until next time,

Matthias Smith

President, Pioneer Capital Advisory

​www.pioneercapitaladvisory.com​
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Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading. Feel free to reply directly to this email with any questions or thoughts.