A balance sheet is often described as a “snapshot” of the financial health of a business. It enables a business to determine whether it is running out of cash as it continues to operate or whether things are running along as smoothly as they should be.
It is considered the financial statement of a company and within it, the liabilities, assets, equity capital and total debt of the business are listed.
A balance sheet is usually calculated after either every quarter, six months or year. Within the balance sheet, it is expected that the sheet is split into two – one side includes the assets, the other includes liabilities.
The reason why lenders want to see this is so that they can ascertain the financial situation of a company before deciding to loan out money. It is important for lenders to understand the financial obligations of a business before deciding to go ahead with a loan.