What Is a Personal Financial Statement?

Are you preparing to apply for a loan?

Whether you’re looking to secure a mortgage, personal loan, or any other type of funding, there are different lender requirements to meet. 

Often, lenders will request a copy of your personal financial statement as part of their preliminary process. This is a detailed document that breaks down your assets and liabilities. 

Lenders can use this document to assess your creditworthiness. In other words, it helps them understand if you’re a responsible borrower and they can trust you with a loan. 

Preparing to create your own financial statement? Not sure what to include? We’re breaking it all down in today’s post. 

Why Do You Need a Personal Financial Statement?

A personal financial statement shows a snapshot of your net worth as an individual. This total represents all of your assets, minus all of your liabilities. 

If you sell all of your assets and pay off all of your debt, your net worth would be what you have in cash at the end. 

Ideally, your assets should be greater than your liabilities. This means you have more coming in on a regular basis than you have going out. A positive net worth is especially important if you’re completing a loan application, as it demonstrates financial responsibility. 

What happens if you crunch the numbers and discover that your liabilities are greater than your assets? In that case, your net worth would be negative. A lender might assess your financial statement and deem you a high-risk buyer.

In some cases, they may be willing to offer you a loan anyway. However, the loan interest rates might be higher and the repayment terms could be shorter. In some cases, they might defer your loan application and request that you apply again later.

If you can get your finances back on track, it can improve your net worth and make you a more favorable loan candidate. However, it’s important to remember that your personal financial statement is only one part of your overall loan application. 

You could have a positive net worth, but your credit report and credit history are still sub-par, which can affect your outcome. Every lender has their own requirements for issuing credit, so check to see if yours will work with low-credit-score applicants and what those terms entail. 

What Are Your Assets?

Assets make up the first part of your financial statement. This is all of the worth that you have to your name, including all of the values and securities you hold in the following accounts:

• Checking accounts
• Savings accounts
• Retirement accounts
• Trading accounts

In addition, your assets include any real estate you own outright, such as a primary residence or vacation home. 

What Are Your Liabilities?

Liabilities include all of the debts that you owe. In theory, these subtract value from your assets. Examples include:

• Personal loans
• Student loans
• Credit card debt 
• Mortgages
• Unpaid taxes

Note that some of your liabilities, such as your mortgage, might be jointly owned between you and your spouse. You should also include those on your personal financial statement. 

If you’re applying for a loan with your spouse, your lender will likely ask you to create a joint financial statement. This document is just like an individual statement, but includes your collective, combined assets and liabilities. 

Exclusions in Personal Financial Statements

As you’re going through your data and trying to gather everything for your personal financial statement, it can help to know what you don’t need to include. 

Let’s take a quick look at some of the key exclusions that can be a little confusing for first-time loan applicants. 

Assets and Liabilities Related to Your Business

Personal financial statements are just that — personal. Most of the time, you do not need to include your business-related assets or liabilities. The only exception would be if you are directly and personally responsible for those entities. 

For instance, you might have personally guaranteed a loan for your small business. In that case, the scenario is similar to co-signing for the loan. You’re essentially agreeing to shoulder the financial burden if your business cannot pay the loan back successfully. 

Thus, you’ll need to include that loan in your personal financial statement if you’re applying for another type of loan. 

Personal Property

When adding up your assets, you might think you need to include the value of your personal property, especially high-value items like electronics, furniture, and other household goods. 

However, lenders don’t usually ask applicants to go into that much detail. The reasoning is that if you needed to liquidate some of your assets to pay off a loan, it would be much more difficult to do so using those items. Instead, you’d start by selling your home, which is a much more valuable type of collateral. 

Rented Goods

If you rent anything, you will not include that entity in your personal financial statement. It is not yours to sell, so lenders will not consider it to be an asset. 

Of course, this only applies when you’re the one renting the item. If you own the item and you allow someone else to rent it, then you will include it in your statement. 

Find the Loans You Need Today

When you need money as soon as possible, it helps to know which lenders can help you secure those funds. 

At Fast Loan Direct, we can help you find offers designed just for you. We work with an extensive network of lenders and our online form is quick and easy to use. 

Now that you know a little more about how to prepare a personal financial statement, are you ready to get started? 

Connect with us today to find a lender who’s ready and willing to help!