What Is a Personal Financial Statement?

Definition and Examples of a Personal Financial Statement

Man compiles information for his personal financial statement
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A personal financial statement is a document that details an individual's assets and liabilities. It's often used by lenders to learn a loan applicant's net worth and other details of their financial life.

Learn how to prepare a personal financial statement, and why it's so important for loans. 

What Is a Personal Financial Statement? 

A personal financial statement details your finances in a simple form. This is an important document for those seeking a business loan proposal. It allows lenders to quickly glean your assets and liabilities. If you are married, the personal financial statement may include your spouse's assets and liabilities, as well. 

Your assets are the things you own that you can turn into cash, such as a home, a checking account balance, or stocks. Your liabilities are amounts you owe to others, such as your mortgage, student loans, and credit card debt.

Your net worth is the difference between your assets and your liabilities, so your financial statement will allow lenders to determine your net worth. For example, if you have a house and a car with a value of $100,000, and you have a mortgage and car loan for $75,000, your net worth is $25,000.

Net worth for an individual is similar to owner's equity for a business. Therefore, a personal financial statement is similar to a business's balance sheet.

How a Personal Financial Statement Works

If you are presenting a business plan or business loan request to a lender, they will probably ask for a personal financial statement. You may be asked to provide a personal guarantee for part of the loan, or you may have to pledge some of your personal assets to guarantee the loan (this is called a "collateral loan"). 

If you have to pledge some of your assets, the personal financial statement will be required so the lender can see if you have enough assets to cover the loan. The personal financial statement will also detail the kinds of assets you have. For example, if you are pledging investments (like an IRA or 401k), the bank will need to know the amount of the investment and where it is kept.

The Small Business Administration (SBA) has a sample personal financial statement you can use to collect the information you need.

How Do I Prepare a Personal Financial Statement?

The format of the personal financial statement is standard. It shows assets on the left and liabilities on the right (like a balance sheet). Net worth is also displayed on the right-hand side of the statement. 

To begin, start gathering information about assets and liabilities. The people reading your personal financial statement know that it simply captures your net worth a point in time, so prepare the document with the most recent information you have, but don't worry if some of the documents are a few weeks old. Your lender understands that some of this information is constantly in flux.

Some of the assets and liabilities that should be listed include:

  • Cash in a checking or savings account
  • An IRA, 401(k), or any other retirement accounts
  • Brokerage accounts
  • A copy of the latest statement on your home mortgage, with the balance outstanding (you may also need a recent appraisal)
  • A copy of the latest statement on your car loan, boat loan, or any other loans
  • Personal property with significant value that can be verified with an appraisal, such as antiques or jewelry (but not household goods or furniture)
  • Credit card debt, and any other debt that may show up on a credit report
  • Any joint debt you took on by being a co-signer on a loan with someone (this is called a "contingent liability")
  • Money owed from a small claims judgment, lien, or similar outstanding liabilities
  • Unpaid taxes from previous years, including any business payroll taxes for which you are personally responsible

Some assets—like stocks—have a clear dollar value, but not all assets are as easy to account for. If you are unsure of the value of assets, do your best to get a reasonable figure, but be realistic. If the lender wants to use the asset for a guarantee on your business loan, they will do an appraisal.

Rentals aren't included in a personal financial statement, because there is no ownership. Renting a house or leasing a car creates a monthly expense, but you don't own these items, so they don't get included in this statement unless you're specifically asked to detail your expenses.

Some personal financial statement formats ask you to include your annual income and expenses. The income should match your most recent income tax return. The expenses should include taxes, insurance payments, and an estimate of any other regularly occurring expenses.

As part of your preparation for presenting your business plan, you should run a complete credit report on yourself. The lender will certainly do this, and you want to know what they'll find. This means going beyond the FICO score to get a full report that shows details.

When you have entered all the information on assets and liabilities, you can finally calculate your net worth by subtracting the liabilities from the assets.

You may find that you have a negative net worth, meaning that you owe more than you own. If that's the case for you, don't try to change the document by eliminating liabilities or over-estimating assets; just accept your situation. Knowingly misrepresenting yourself on a financial statement could result in up to five years of imprisonment and a fine of up to $250,000.

Key Takeaways

  • A personal financial statement is a document that details a person's assets and liabilities.
  • Personal financial statements are often used by lenders to assess the net worth of loan applicants.
  • Lying on personal financial statements can result in hefty criminal penalties.

Article Sources

  1. Small Business Administration. "Personal Financial Statement," Page 3. Accessed June 30, 2020.