Virtually all entrepreneurs, even those who have accumulated substantial wealth, need financing in order to start their business. As the old saying goes, you have to spend money to make money. Some business owners will also need additional financing while running their business, perhaps to expand operations or for research and development. When you seek financing for your business, most bankers and lenders will ask you to provide specific financial documents so they can evaluate your application. Relevant financial documents include tax returns, bank accounts, profit and loss statements, and a personal financial statement.
It is a good idea to provide your lender with as much information as possible when applying for a loan to increase your chances of receiving financing. Remember, lenders generally offer better loan terms to borrowers when they know what kind of risk is involved. Below is an example of a basic personal financial statement, which provides a snapshot of your finances at the particular time you prepare the statement. For more information and resources related to this topic, you can visit FindLaw's Startup Financing section.
Accounts/notes receivable $__________
Real Estate $__________
Cash value life insurance $__________
Other Assets $__________
TOTAL ASSETS $__________
Notes payable $__________
Accounts/bills due $__________
Unpaid taxes $__________
Real estate mortgages payable $__________
Land contracts payable $__________
Life insurance loans $__________
Other liabilities $__________
TOTAL LIABILITIES $__________
NET WORTH $__________
TOTAL LIABILITIES AND NET WORTH $__________
(Assets always equal Total Liabilities and Net Worth)
Please note that the form above is only a sample of a personal financial statement. Your particular lender may require you to provide additional or different information. For more information about running your business, visit FindLaw's Small Business Law section.
Options for Financing Your Business
Financing for your business can come from various sources, and most entrepreneurs use more than one. If you have the money, you can finance some or all of the business yourself, but it's a substantial risk to use all of your money on a business venture that may not succeed. There is also the option of asking friends and family members for a loan, provided they have the capital and understand what is at stake. There is a risk, however, that owing a friend or family member money could cause problems in your relationship.
It's also possible to finance your business with a credit card. But, keep in mind, that credit cards are one of the more costly ways of financing your business and typically come with very high interest rates. Banks and other similar financial institutions can also be a good source for business loans, assuming you meet their criteria for receiving a loan, and offer much better rates than credit cards. Finally, you can apply for a federally backed loan from the Small Business Administration (SBA).
Regardless of how you choose to finance your business, it's a good idea to have all of your financial documents organized and readily available. This includes making a detailed and accurate personal financial statement. The more information you can provide to the potential lender, the more likely it will be for you to get approved for the loan.
Getting Legal Help
Creating a personal financial statement does not usually require an attorney's help. However, if you have questions or concerns about making a personal financial statement, or any other aspect of starting or running your business, you may want to contact an experienced business organizations attorney in your area.