What Is a Personal Financial Statement — and Why Do Banks Need One?

Getting ready to apply for a commercial loan, but feel overwhelmed by the application process? This is the first in a series of posts that help explain the different documents requested during a commercial loan application — to help you feel more prepared for your loan request. First up: the Personal Financial Statement.

What Is a Personal Financial Statement?

A Personal Financial Statement (PFS) is essentially a Balance Sheet for your personal finances. It lists what you own (Assets), what is owed on those assets (Liabilities), and what's left (Net Worth). The PFS is a great snapshot to see where you hold your personal investments, get an idea for what sources of debt you hold, and what debt could be prioritized to be paid off to improve your net worth and financial independence.

Why Do Banks Need a Personal Financial Statement?

A PFS is used by bankers in the lending application process for a number of reasons, including:

• It shows bankers how much access you have to liquidity (Cash, Untapped Lines of Credit, Distributable Investments, etc.) as a means to cover your personal cash flow and potentially as a means to cover debt repayments/liabilities in your business.
• It shows bankers how reliant you are on personal debt (Credit Card Debt, Student Loans, Car and Recreational Loans, Mortgages, etc.).
• It shows bankers assets that could be used as collateral to secure a loan request (Home Equity, Fully Owned Vehicles, Investments that allow for assignment, etc.).
• It shows bankers how recently you have purchased or financed assets as a means to view financial stability. Did you just take out a new car loan and started making payments? Did your retirement savings balance go up because of recent debt payoffs and more available income to save?
• It can show to what degree your household may rely on business income to support your personal financial needs. If an unexpected downturn hits your business, will that also stress your personal finances?

How to Complete a Personal Financial Statement

A Personal Financial Statement sounds intimidating to complete, but most of the information can be completed by reviewing online account statements and appraisals for assets such as vehicles and homes through online appraisal sites. Once you have your statements and records ready, you could have a fully completed PFS to have ready for your banker within an hour or two!