What is an Income Statement?
An income statement (also called a profit and loss statement or P&L) is a financial document that shows your business's revenues, expenses, and profits over a specific period. It's one of the three essential financial statements that banks require when evaluating a loan application, alongside the balance sheet and cash flow statement.
Why Lenders Need Your Income Statement
- Profitability Assessment: Shows whether your business generates enough profit to service debt
- Revenue Trends: Demonstrates growth or stability in your business income
- Expense Analysis: Reveals how well you manage operating costs
- Cash Flow Capacity: Helps calculate your ability to make loan payments
Income Statement Structure
A standard income statement follows this format:
Sample Income Statement
For the Period Ending December 31, 2024
Key Components Explained
Revenue
Total income from sales of products or services before any expenses are deducted. Also called "top line" or gross sales.
Cost of Goods Sold (COGS)
Direct costs to produce goods or deliver services. Includes materials, direct labor, and manufacturing overhead.
Gross Profit
Revenue minus COGS. Shows the profit from core business activities before operating expenses.
Net Income
The "bottom line" - total profit after all expenses, interest, and taxes. This is what lenders focus on most.
When Banks Request Income Statements
SBA Loan Applications
3 years of P&L statements typically required
Commercial Real Estate Loans
Property and business income statements needed
Business Lines of Credit
Current year and prior year P&L required
Investor Presentations
Financial due diligence for equity investments
Tips for Creating Your Income Statement
- Be consistent: Use the same categories and accounting methods across periods
- Match your tax returns: Numbers should reconcile with filed business tax returns
- Include year-to-date: Provide interim P&L statements if requested mid-year
- Separate non-recurring items: One-time expenses or income should be clearly noted