Exam 12: A Firms Sources of Financing

You Make the Call-Situation 1 David Bernstein needs help financing his Lodi, New Jersey-based Access Direct Inc., a six-year-old $3.5 million company. "We're ready to get to the next level," says Bernstein. "But we're not sure which way to go." Access Direct spruces up and then sells used computer equipment for corporations; it is looking for up to $2 million in order to expand. "Venture capitalists, individual investors, or banks," says Bernstein, who owns the company with four partners, "we've thought about them all."

You Make the Call-Situation 3 Steve Peplin is the president of Talan Products, a metal stamper based in Cleveland. Peplin has a long-term relationship with his banker. But recently his firm ran into financial difficulty, and the bank is demanding that Peplin personally guarantee 100 percent of the company's loans. Peplin would prefer not to do so, but isn't sure that he has a choice. (Source: "Hands On," Inc., Vol. 25, No. 8 (August 2003), p. 50.)

If an owner is looking to take out a loan for equipment that will last approximately 8 years the ideal loan would be

Venture capitalists restrict their investment in startup companies.

If Bill Bailey, owner of Cherokee Communications, had violated the covenants of his loan agreement,

Research for developing a new method of manufacturing would be a(n) _____ asset.

Private placement is the selling of stock only to selected individuals.

Use of debt financing increases potential returns when a company is performing well, but it also increases the possibility of lower-even negative-returns if the company does not attain its goals in a given year.

Most of those who invest in startups limit their investing to firms with potentially high returns in a _____ period.

The five Cs of credit are character, capacity, capital, conditions, and collateral.

When bankers look for evidence of whether a business will be able to repay a loan, they usually base their assessment of this on

The main advantage of using credit cards for financing is the relatively low interest rate compared to bank loans.

Qualified small businesses that cannot obtain business loans through normal lending channels can get loans directly from the SBA through its 7(a) Loan Guaranty Program.

Based on an operating income of $30,000 and total assets of $200,000 what would be the percent return on assets?

Commercial investors are sometimes called business angels.

LIBOR is _____ the prime rate.

The following are key terms included in all bank loan agreements except

The traditional way to locate business angels is through

How likely is the typical startup to succeed in getting funded by a venture capitalist?

When it comes to financing a company, a banker looks at two kinds of assets: