Exam 13: Sources of Financing: Debt and Equity

A federally sponsored program which offers loan guarantees to create and expand businesses in areas with below-average income and high unemployment is called:

Mini-Case 13-1: "Where do I go now ...? Christine Hernandez is in the process of launching a restaurant. Christine has never owned her own restaurant before, but she has worked for two of the best restaurants in town. Starting out as a hostess, Christine developed a special knack for the business and quickly worked her way up to the job of manager. Her 18 years of experience have given her a solid foundation for running her own restaurant. Christine has worked with a counselor at a nearby Small Business Development Center and a counselor from the Service Corps of Retired Executives to prepare a business plan. She asked two other consultants and an accountant to review the plan and incorporated their suggestions into the finished product. When Christine took her plan to her bank, however, the bank turned down her loan request of $165,000, citing the venture as "too risky, given the failure rate of restaurants." The bank acknowledged her experience as "a major asset," but said that it "could not expose itself to such risks in its portfolio." Christine heard the same story from three other banks. Christine is confident in her ability to manage her own restaurant successfully, and she is determined to get the financing she needs to launch it. -What might Christine do to convince a bank to lend her the money she needs to launch her company?

Commercial finance companies are willing to take more risk in making loans than commercial banks, but they also charge a higher interest rate.

Small businesses devastated by floods, earthquakes, fires, and other maladies would seek assistance through which SBA loan program?

The maximum loan under the SBA's Community Express Program is ________ with an SBA guarantee of up to ________ percent with a streamlined application process .

Commercial banks are lenders of last resort for small businesses.

The U.S. Department of Agriculture's Rural Business Co-op Service provides financial assistance to businesses that create nonfarm employment opportunities in rural areas.

To be eligible for the simplified registration process under Regulation S-B and S-K, a company must:

SBIC financing would be attractive to an entrepreneur whose primary concern is maintaining majority ownership in her business, as SBICs are prohibited from obtaining a controlling interest in the companies in which they invest.

Before entering into any partnership arrangement, entrepreneurs must consider:

A business owner does not pay interest on a floor-planned item in inventory until it is sold.

The first place an entrepreneur should look for startup capital is:

Loans made under the SBA's Disaster Loan Program carry below-market interest rates and are designed to provide assistance to small businesses that have been the victims of a variety of disasters, such as hurricanes, floods, earthquakes, and tornadoes, as well as the terrorist attacks of September 11, 2001.

Angels fill an important role in equity financing of a small business. Discuss their role, their typical profile, and how to find an angel.

Mini-Case 13-1: "Where do I go now ...? Christine Hernandez is in the process of launching a restaurant. Christine has never owned her own restaurant before, but she has worked for two of the best restaurants in town. Starting out as a hostess, Christine developed a special knack for the business and quickly worked her way up to the job of manager. Her 18 years of experience have given her a solid foundation for running her own restaurant. Christine has worked with a counselor at a nearby Small Business Development Center and a counselor from the Service Corps of Retired Executives to prepare a business plan. She asked two other consultants and an accountant to review the plan and incorporated their suggestions into the finished product. When Christine took her plan to her bank, however, the bank turned down her loan request of $165,000, citing the venture as "too risky, given the failure rate of restaurants." The bank acknowledged her experience as "a major asset," but said that it "could not expose itself to such risks in its portfolio." Christine heard the same story from three other banks. Christine is confident in her ability to manage her own restaurant successfully, and she is determined to get the financing she needs to launch it. -What other sources of capital would you suggest that Christine explore?

One study reports that 7 percent of the capital for start-up companies comes from credit cards.

SBICs:

A/An ________ is a private, for-profit organization that purchases equity positions in young businesses that will potentially produce returns of 300 to 500 percent over five to seven years.

A program offered by communities that combine private and public funds to make loans to small businesses, often at favorable interest rates, is the:

Two factors that make a deal attractive to venture capitalists include high returns and a convenient and profitable exit strategy.