by Debi Enders
Before we answer that question, let’s address an even more fundamental one: What exactly is a personal financial statement? In a nutshell, it’s a document that provides a summary of what you own (your assets) and what you owe (your liabilities). Subtract the second from the first and you get your personal net worth, a picture of your financial position at that moment in time.
There is at least one good reason to create a personal financial statement: You can’t get a small-business loan without one. Like credit reports, personal financial statements provide lenders with much of the valuable information they consider when making loan decisions. They show if you have home, automobile or other loans and how much you owe on them. They also provide details on how much you’ve saved, giving lenders an idea of how well you manage your finances.
Here’s a tip: Your banker will be impressed if you bring yours along when you apply for a loan. If you’ve never completed one, the Small Business Administration has an online version to get you started. As you complete it, keep in mind:
• Honesty is the best policy. There’s no benefit to misrepresenting numbers or leaving out details that shine a less-than-positive light on your financial picture. Lenders will verify your information, and discrepancies raise red flags.
• Be up to date. A personal financial statement is a snapshot; it will fluctuate over time. For a Small Business Administration-backed loan, you’ll need one from the past 90 days.
• Update it regularly. Your first attempt at a personal financial statement is the hardest. After that it’s just a matter of updating. Do it annually – whether you need a loan or not.
Why is updating so important? One big reason: It helps you gauge your progress toward meeting your financial goals. If you need help getting started, or anywhere along the way, your banker will be happy to help.
Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.
Submitted 8 years 149 days ago