What Is a Personal Financial Statement?

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A personal financial statement is an important document that you may need as part of the documents for a business loan proposal. Learn what a personal financial statement is, why it's helpful as part of your loan package, and how to prepare a personal financial statement. 

What Is a Personal Financial Statement? 

A personal financial statement is a document that shows your personal assets and liabilities as well as your personal net worth. The equation here is that Assets minus Liabilities equals Net Worth. If you are married, the personal financial statement may be a combination of your assets and those of your spouse. 

Your assets are your ownership of items like a home or a car or investments. 

Your liabilities are amounts you owe to others. For example, you might have a loan on your home or car, or you might owe money on credit cards. 

Your net worth is the difference between your assets and your liabilities. 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.

That is, it's the difference between the business assets and liabilities -- the amount of the business owned by the owner. In a business, this document is called a balance sheet

Note that rentals don't show on the 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. 

When Do I Need a Personal Financial Statement? 

If you are presenting a business plan or business loan request to a lender, they will probably ask for a personal financial statement. In many cases, 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. Sometimes this is called a collateral loan. 

The personal financial statement will be required so the lender can see if you have enough assets and what 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. 

What Does a Personal Financial Statement Look Like? 

The format of the personal financial statement is standard. It shows assets on the left and liabilities on the right. Net worth is also shown on the right, to balance the equation. 

What Else Might Be Included?

Some personal financial statement formats ask you to include your annual income and expenses. The income amounts should match your most recent income tax return. The expenses should include income taxes and other taxes, mortgage payments or rent payments, insurance payments, legal claims (like alimony payments) and an estimate of other expenses.

How Do I Prepare a Personal Financial Statement? 

To begin, start gathering information about assets and liabilities. The personal financial statement shows assets and liabilities and net worth at a specific point in time, so just prepare the document with the most recent information you have. Your lender understands that some of this information is changing as you go about making your personal financial transactions (making payments, for example). And investment values change over time too.

If you are unsure of the value of assets, do your best to get a reasonable figure. If the lender wants to use the asset for a guarantee on your business loan, they will do an appraisal. 

As part of your preparation for presenting your business plan, you should run a complete credit report on yourself, because the lender will certainly do this. This means getting not just the FICO score, but a report that shows details. 

Some details on these assets and liabilities:

  • Cash in a checking or savings account. The most recent balance is OK since these figures are always changing. 
  • An IRA, 401k, or other retirement accounts. 
  • Other brokerage accounts, showing the most recent balance. 
  • A copy of the latest statement on your home mortgage, with the balance outstanding. For a mortgage, you may also need a recent appraisal
  • A copy of the latest statement on your car loan, boat loan, other other loans. 
  • Don't include furniture and household goods as personal property. These items have no value to a lender because they can't be sold to pay off the loan. 
  • You can include special items of personal property if they have significant value and you can verify the value with an appraisal. For example, including antiques or jewelry might be appropriate. 
  • Include credit card debt in liabilities. Actually, include any debt that may show up on a credit report. 
  • Include any debt you have jointly with someone else (called a "contingent liability." For example, if you are a co-signer on a loan with someone, be sure to put that in the report. 
  • If you owe money from a small claims judgment or other lien or judgment, include these; they are public records. The lender may check court records to see if you have any outstanding liabilities. 
  • If you have unpaid taxes from previous years, these amounts should be included. These taxes include federal and state income taxes and any business payroll taxes, for which you are personally responsible. 
  • The lender may want to know your sources of income (see the SBA form below). It's a good idea to list this information, and be able to show the income through your checking account or business checking account. 

The Small Business Administration (SBA) has a sample personal financial statement you can use. This form will help you make sure you haven't missed anything 

When you have entered all the information on assets and liabilities, the last thing to do is calculate your net worth. If you have a negative net worth (you owe more than you own), so be it. Don't try to change the document by eliminating liabilities or over-estimating assets. Just let it be what it is. 

What's Most Important to Remember? 

This statement is a general document that lists things you own and things you owe, but a lender will also want documentation of ownership and liabilities. For example, if you have a home mortgage, the lender may want an appraisal on the home and a statement showing the balance still owed on the mortgage. 

If you think you will need to prepare a personal financial statement, be sure you also have the supporting records ready to share with the lender. This will make the loan process easier and faster. 

Finally, be sure to be honest, complete, and accurate when preparing and presenting your personal financial statement. If you look at the SBA financial statement document, you'll see that "Knowingly making a false statement on this form is a violation of federal law..." and falsely stating your personal financial situation to a bank can be just as damaging.