---
title: Getting Loan Ready | Understanding Financial Statements | Craft3
description: Learn to understand and use financial statements to make informed decisions, empowering your entrepreneurial journey with essential financial insights.
image: https://info.craft3.org/hubfs/Pillar%20Page/Getting%20Loan%20Ready/Social%20-%20Understanding%20Financial%20Statements.jpg
---
[](https://info.craft3.org/?hsLang=en)
- [Donate](https://www.craft3.org/get-involved/donate)
- [contact](https://www.craft3.org/contact)
- [Log in](https://info.craft3.org/cs/c/?cta_guid=49d84213-8cf7-4278-877b-afc5342732be&signature=AAH58kESiSVPUHWmWP8gbJejVRtUAhPH5A&placement_guid=b15c7f52-ce34-4fd4-9d87-9639b9128b46&click=7b8e4b39-dd0e-4ba5-a544-3ecc1d37a31f&hsutk=3800186dc6585f1895d3a9160da73e5a&canon=https%3A%2F%2Fwww.craft3.org%2Fhomeowner-loans%2Fhome-energy&portal_id=6162194&redirect_url=APefjpE7HthQII34yr8RgyuOZp42K38W-duBRb8EtzhRorh-_zDRCie1hkYgx6PNHBFHUFP1XQCt76OXaDjSbQ4Jmr9_1hC8_xhD7HOYzsp-5fv479B4D3BDeU65vSgjjWdYrp8KfLZZ9hsQoyBC-OL1WAFFRYT50nh6-9Ql6OzzaxYYC4bZaeWlmVV1A0gAC1_a0uUQ8RmnTHALqfuPOwu6gN7rNJ46k6YnvYzxrykAx78JNjxRWoHTQYngOKuywdSC9Eb3qTSx&__hstc=231603520.3800186dc6585f1895d3a9160da73e5a.1679976021137.1679986500007.1679989498933.4&__hssc=231603520.4.1679989498933&__hsfp=32358173&hsLang=en)
[](https://www.craft3.org/)
- Business Loans
- [General Business Loans](https://www.craft3.org/business-loans/business)
- [Bridge Loans](https://www.craft3.org/business-loans/bridge-loans)
- [Owner-Occupied Commercial Real Estate Loans](https://www.craft3.org/business-loans/real-estate)
- [Construction Loans](https://www.craft3.org/business-loans/construction)
- [Islamic Financing](https://www.craft3.org/business-loans/islamic-financing)
- [Not sure where to start?](https://www.craft3.org/business-loans)
- Loans for Homeowners
- [Clean Water Loans](https://www.craft3.org/homeowner-loans/clean-water)
- [Oregon](https://www.craft3.org/homeowner-loans/clean-water/oregon)
- [Washington](https://www.craft3.org/homeowner-loans/clean-water/washington)
- Get Involved
- [Get Involved](https://www.craft3.org/get-involved)
- [Donate](https://www.craft3.org/get-involved/donate)
- [Community Impact Investment Note](https://www.craft3.org/get-involved/community-impact-investment-note)
- [Mission-aligned Investments](https://www.craft3.org/get-involved/mission-aligned-investments)
- [Grants](https://www.craft3.org/get-involved/grants)
- [Partnership Opportunities](https://www.craft3.org/get-involved/partner)
- [Supporters](https://www.craft3.org/get-involved/supporters)
- Tools
- [For Bankers](https://www.craft3.org/tools/bankers)
- [For Businesses](https://www.craft3.org/tools/business)
- [For Contractors](https://www.craft3.org/tools/contractors)
- [For Investors](https://www.craft3.org/tools/investors)
- Impact
- [Our Impact](https://www.craft3.org/impact)
- [Customer Stories](https://www.craft3.org/customer-stories)
- About
- [Our Story](https://www.craft3.org/about)
- [Our Team](https://www.craft3.org/about/team)
- [Our Board](https://www.craft3.org/about/board-members)
- [Portfolio](https://www.craft3.org/about/portfolio)
- [Financials](https://www.craft3.org/about/financials)
- [News](https://www.craft3.org/blog)
- [Career Opportunities](https://www.craft3.org/about/careers)
- [Donate](https://www.craft3.org/get-involved/donate)
- [contact](https://www.craft3.org/contact)
- [Log in](https://info.craft3.org/cs/c/?cta_guid=49d84213-8cf7-4278-877b-afc5342732be&signature=AAH58kESiSVPUHWmWP8gbJejVRtUAhPH5A&placement_guid=b15c7f52-ce34-4fd4-9d87-9639b9128b46&click=7b8e4b39-dd0e-4ba5-a544-3ecc1d37a31f&hsutk=3800186dc6585f1895d3a9160da73e5a&canon=https%3A%2F%2Fwww.craft3.org%2Fhomeowner-loans%2Fhome-energy&portal_id=6162194&redirect_url=APefjpE7HthQII34yr8RgyuOZp42K38W-duBRb8EtzhRorh-_zDRCie1hkYgx6PNHBFHUFP1XQCt76OXaDjSbQ4Jmr9_1hC8_xhD7HOYzsp-5fv479B4D3BDeU65vSgjjWdYrp8KfLZZ9hsQoyBC-OL1WAFFRYT50nh6-9Ql6OzzaxYYC4bZaeWlmVV1A0gAC1_a0uUQ8RmnTHALqfuPOwu6gN7rNJ46k6YnvYzxrykAx78JNjxRWoHTQYngOKuywdSC9Eb3qTSx&__hstc=231603520.3800186dc6585f1895d3a9160da73e5a.1679976021137.1679986500007.1679989498933.4&__hssc=231603520.4.1679989498933&__hsfp=32358173&hsLang=en)
- Business Loans
- [General Business Loans](https://www.craft3.org/business-loans/business)
- [Bridge Loans](https://www.craft3.org/business-loans/bridge-loans)
- [Owner-Occupied Commercial Real Estate Loans](https://www.craft3.org/business-loans/real-estate)
- [Construction Loans](https://www.craft3.org/business-loans/construction)
- [Revolving line of credit for food and beverage processors](https://www.craft3.org/business-loans/revolving-line-of-credit)
- [Islamic Financing](https://www.craft3.org/business-loans/islamic-financing)
- [View All](https://www.craft3.org/business-loans)
- Loans for Homeowners
- [Home Energy Loans](https://www.craft3.org/homeowner-loans/home-energy)
- [Pacific Power (Wash.)](https://www.craft3.org/homeowner-loans/home-energy/pacific-power-wa)
- [Pacific Power (Ore.)](https://www.craft3.org/homeowner-loans/home-energy/pacific-power-oregon)
- [NW Natural (Wash.)](https://www.craft3.org/homeowner-loans/home-energy/nw-natural-wa)
- [NW Natural (Ore.)](https://www.craft3.org/homeowner-loans/home-energy/nw-natural-oregon)
- [Seattle City Light](https://www.craft3.org/homeowner-loans/home-energy/seattle-city-light-wa)
- [Portland General Electric](https://www.craft3.org/homeowner-loans/home-energy/pge)
- [Clean Water Loans](https://www.craft3.org/homeowner-loans/clean-water)
- [Oregon](https://www.craft3.org/homeowner-loans/clean-water/oregon)
- [Washington](https://www.craft3.org/homeowner-loans/clean-water/washington)
- [ADU Loans](https://www.craft3.org/homeowner-loans/adu-loans)
- [Craft3 ADU Loans](https://www.craft3.org/homeowner-loans/adu-loans/craft3-adu-loans)
- [BackHome ADU Loans](https://www.craft3.org/homeowner-loans/adu-loans/backhome-adu-loans)
- Get Involved
- [Get Involved](https://www.craft3.org/get-involved)
- [Donate](https://www.craft3.org/get-involved/donate)
- [Community Impact Investment Note](https://www.craft3.org/get-involved/community-impact-investment-note)
- [Mission-aligned Investments](https://www.craft3.org/get-involved/mission-aligned-investments)
- [Grants](https://www.craft3.org/get-involved/grants)
- [Partnership Opportunities](https://www.craft3.org/get-involved/partner)
- [Supporters](https://www.craft3.org/get-involved/supporters)
- Tools
- [For Bankers](https://www.craft3.org/tools/bankers)
- [For Businesses](https://www.craft3.org/tools/business)
- [For Contractors](https://www.craft3.org/tools/contractors)
- [For Investors](https://www.craft3.org/tools/investors)
- Impact
- [Our Impact](https://www.craft3.org/impact)
- [Customer Stories](https://www.craft3.org/customer-stories)
- About
- [Our Story](https://www.craft3.org/about)
- [Our Team](https://www.craft3.org/about/team)
- [Our Board](https://www.craft3.org/about/board-members)
- [Career Opportunities](https://www.craft3.org/about/careers)
- [Portfolio](https://www.craft3.org/about/portfolio)
- [Financials](https://www.craft3.org/about/financials)
- [News](https://www.craft3.org/blog)
- [Donate](https://www.craft3.org/get-involved/donate)
- [contact](https://www.craft3.org/contact)
- [Log in](https://info.craft3.org/cs/c/?cta_guid=49d84213-8cf7-4278-877b-afc5342732be&signature=AAH58kESiSVPUHWmWP8gbJejVRtUAhPH5A&placement_guid=b15c7f52-ce34-4fd4-9d87-9639b9128b46&click=7b8e4b39-dd0e-4ba5-a544-3ecc1d37a31f&hsutk=3800186dc6585f1895d3a9160da73e5a&canon=https%3A%2F%2Fwww.craft3.org%2Fhomeowner-loans%2Fhome-energy&portal_id=6162194&redirect_url=APefjpE7HthQII34yr8RgyuOZp42K38W-duBRb8EtzhRorh-_zDRCie1hkYgx6PNHBFHUFP1XQCt76OXaDjSbQ4Jmr9_1hC8_xhD7HOYzsp-5fv479B4D3BDeU65vSgjjWdYrp8KfLZZ9hsQoyBC-OL1WAFFRYT50nh6-9Ql6OzzaxYYC4bZaeWlmVV1A0gAC1_a0uUQ8RmnTHALqfuPOwu6gN7rNJ46k6YnvYzxrykAx78JNjxRWoHTQYngOKuywdSC9Eb3qTSx&__hstc=231603520.3800186dc6585f1895d3a9160da73e5a.1679976021137.1679986500007.1679989498933.4&__hssc=231603520.4.1679989498933&__hsfp=32358173&hsLang=en)
## Getting Loan Ready
# Understanding and Using Financial Statements for Your Business
Understanding, creating, and using financial statements can help you run and grow your business.
### Understanding, creating, and using financial statements can help you make informed and strategic decisions about how to run and grow your business.
Unfortunately, financial statements inspire fear and anxiety for some entrepreneurs.
Entrepreneurs typically have many skills, but finance and bookkeeping are not always among them. Most lenders, however, will want to see financial statements before making a loan. And basic financial statements are not just a hurdle to jump over to get a loan. They are tools to help you understand your business.
While you don’t need to become an accountant, increasing your comfort and understanding of basic financial statements can be very helpful. Below we explain the three most important financial statements:
- Profit and Loss
- Balance Sheet
- Cash Flow
Taken together, these three interrelated financial statements can give you powerful insights into your business’ profitability, its financial condition, and expected cash flow. Let’s take a high-level look at each one.
---
##### CRAFT3 PRO TIP
Don’t worry if you don’t understand everything about basic financial statements on your first read through. Take in what you can and feel free to skip parts that are confusing. Come back later and give the section a second read.
-Aldo Medina Martinez VP, Commercial Lending Team Manager
---
#### 1. Profit and Loss (also known as an Income Statement)
Generally created monthly, after bank reconciliation, a profit and loss statement lets you track revenue, monitor expenses, and know whether your business is profitable.
You can think of a profit and loss statement as two simple formulas.
Revenue - Cost of goods sold = Gross profit
Gross profit - Expenses = Net profit
Revenue can come from goods sold or services provided. Your cost of goods sold are your costs directly related to the product or service you sell. Your expenses are other, indirect costs not associated with goods sold or services provided, such as rent.
Your gross profit shows you the money available to pay operating expenses such as rent and payroll.
Your net profit shows you money available to reinvest in your business, pay taxes, or pay yourself.
#### Press Play: Making Sense of Financial Statements
Astrid Daniela Galvez—QuickBooks ProAdvisor, Tax Specialist, and Craft3 partner—breaks down key financial statements in this quick video. Learn how to read and use them to gauge your business’s financial health, spot profits, and identify where you can improve.
##### Craft3 meets customers where they are
When a creative and talented chef contacted us about a loan to turn his side business into a fulltime venture, he has a solid business plan and delicious products. But up to this point he hadn’t done any formal bookkeeping.
We looked at his Square receipts and put together some financial projections before issuing a $45,000 loan. We’re often able to work with entrepreneurs who have strong businesses, but incomplete financials or unconventional bookkeeping.
2. Balance Sheet
A balance sheet is a moment in time snapshot of your business’ finances. Generally created quarterly, it lists your assets and liabilities.
You can think of a balance sheet as a simple formula.
Current assets + fixed assets - liabilities = net value or equity
Current assets include accounts receivable, inventory, and cash, while fixed assets are less liquid and include furniture, equipment, and property.
Liabilities are often broken down into those due within 12 months and longer-term liabilities such as loans and mortgages.
3. Cash Flow
A cash flow statement is future-oriented and models the expected cash flowing in and out of the business. This can help you set sales and expense goals, plan for major expenses, and cope with seasonal fluctuations in sales.
Again, there’s a simple formula.
Cash receipts (inflows) - cash disbursements (outflows) = cash surplus or shortfall
Cash receipts typically come from goods sold or services provided, while cash disbursements are your expenses.
Cash flow statements, by highlighting potential shortfalls as well as inflows, can help you determine your need for financing as well as your ability to repay a loan.
#### At Craft3, we’re committed to helping entrepreneurs not just access capital—but grow and thrive.
We can often work with incomplete records and offer tools to help you create your own financial statements. Plus, we’ll connect you with trusted CPAs, bookkeepers, and other pros who can support your next steps.
---
##### CRAFT3 PRO TIP
It’s OK if you’re not able to produce financial statements that are up to an accountants’ standards. Gaining new skills takes time. Partial financial statements are better than none at all. And if you end up working with a bookkeeper or other professional, understanding the main concepts behind key financial statements is very helpful.
-Yasmin Smith VP, Senior Underwriter
---
#### Bonus: You Don’t Have to Be a Financial Expert
Getting comfortable with financial statements takes time—and that’s okay. You don’t have to be an accountant to understand the basics or to take meaningful steps toward loan readiness.
Even starting small—like organizing your income and expenses—is a step in the right direction.
Need a little help along the way?
- Connect with your [local SBDC](https://americassbdc.org/find-your-sbdc/) (Small Business Development Center)
- Find a [mentor through SCORE](https://www.sba.gov/local-assistance/resource-partners/score-business-mentoring#find-a-score-business-mentor), or use [SCORE’s Financial Statements Template Library](https://www.score.org/templates-resources/business-planning-financial-statements-template-gallery)
- Use the guide [Financial statements: What business owners should know](https://quickbooks.intuit.com/r/bookkeeping/what-business-owners-should-know-about-financial-statements/?cid=SOC_US_QRC_US_YT_ALL_NON_NON-RunYourBusiness_MOF_Traffic_NON_QRC_R-brJEQ6gfQ_Astrid) from Intuit QuickBooks
You’ve got this—one step at a time.
### **Tools and Resources to Help You Get Loan Ready**
Thanks for spending time with this resource — and congratulations on taking a meaningful step toward strengthening your business.
This guide is just one piece of the support we offer small business owners. If you're looking for a deeper dive into [preparing for financing](https://info.craft3.org/definitive-guide-to-getting-loan-ready?hsLang=en), check out our comprehensive **[Definitive Guide to Getting Loan Ready](https://info.craft3.org/definitive-guide-to-getting-loan-ready?hsLang=en)** page.
##### **Start with the Basics**
- **[Glossary of Finance and Business Terms](https://info.craft3.org/hubfs/0.%20Brandfolder%20Assets/Brochures%20and%20Fliers/Craft3_Glossary_of_Terms_Digital.pdf?hsLang=en)** Make sense of unfamiliar financial language. You don’t need to talk like a banker — but understanding their terms and mindset can help you communicate more effectively and make smarter decisions.
- [Understanding and Using Financial Statements for Your Business one-pager](https://info.craft3.org/hubfs/Commercial%20Nurturing/Understanding%20and%20Using%20Financial%20Statements%20for%20Your%20Business.pdf?hsLang=en) A printable summary of what you’ve learned here — perfect as a prep checklist or to share with a business partner.
- **Definitive Guide to Getting Loan Ready e-book in [English](https://info.craft3.org/hubfs/0.%20Brandfolder%20Assets/Brochures%20and%20Fliers/Definitive%20Guide%20to%20Getting%20Loan%20Ready%20-%20English.pdf?hsLang=en) or [Spanish](https://info.craft3.org/hubfs/0.%20Brandfolder%20Assets/Brochures%20and%20Fliers/Definitive%20Guide%20to%20Getting%20Loan%20Ready%20-%20Spanish.pdf?hsLang=en) **Our comprehensive guide walks you through everything you need to know to confidently prepare for business financing — from strengthening your financials to telling your business story with impact.
- **Subscribe for Business Tips** Get practical, actionable advice delivered to your inbox — covering everything from business plans to getting documents together.
### **When You’re Ready, We’re Here to Help**
At Craft3, we specialize in working with entrepreneurs who may not fit the traditional mold — and we believe in second chances and fresh starts.
##### **Take the Next Step**
- **[Explore Craft3’s Business Loan Options](https://www.craft3.org/business-loans)** Learn how we support small business owners through accessible, flexible financing.
- **[Submit a Loan Inquiry](https://www.craft3.org/get-started)** You can start the loan process by completing our online form. A lender will then follow up with you to schedule a conversation.
[](https://info.craft3.org/hs/cta/wi/redirect?encryptedPayload=AVxigLIxEd4rW1uMqs1BVTVn%2BuAJZa%2FdtorbUYqW%2BrR623qKdPrOO6zEOmgGyswr7eoZejZBBduTZI4u8Fgxb2cYocK960KATzbrOUX%2BK6uWkNaED6hheaPelcOG5fon3NpKA%2BLSpT5LnrNkEhI7ni61nBLAyfYIGP%2FStf0oM10Or6iTVO76aKw%3D&webInteractiveContentId=188401657176&portalId=6162194&hsLang=en)
### About Craft3
Craft3 is nonprofit community lender focused on building a thriving, just, and empowered Pacific Northwest. We support entrepreneurs — especially those that have been denied access to opportunity — by offering responsible capital and tools, like this guide, to support you on your business journey.
#### Subscribe
We’ll share relevant stories, news, information, and resources.
- [Accessibility](https://www.craft3.org/accessibility)
- [Privacy Policy](https://www.craft3.org/privacy-policy)
- [Terms of Use](https://www.craft3.org/terms-of-use)
- [NMLS Consumer Access](https://nmlsconsumeraccess.org/)
- [](https://www.linkedin.com/company/craft3/)
- [](https://www.linkedin.com/company/craft3/)
- [](https://www.x.com/craft3org/)
- [](https://www.youtube.com/@Craft3)
Craft3 is an equal opportunity lender and employer. NMLS #390159. Completing an application does not guarantee loan approval or funding. Craft3 (EIN 91-1662698) is a 501(c)(3): all donations are tax deductible. Copyright 2025 Craft3. All rights reserved.