Deck 11: Financing Your Business

Question 1

Which of the following can a bank grant to a business?

A) an equity loan
B) a line of credit
C) preferred shares
D) micro-loan

Answer 1

a line of credit

Question 2

Which type of financing combines long-term lending with an equity position?

A) bridge
B) mezzanine
C) factoring
D) inventory financing

Answer 2

mezzanine

Question 3

Which of the following has the greatest influence on finance sourcing for inventory?

A) venture capitalists
B) suppliers
C) angel investors
D) equity investors

Answer 3

suppliers

Question 4

Which of the following describes venture capital firms?

A) are a major source of small-business financing
B) usually lend money that is secured by inventory
C) normally purchase equity in a business
D) invest in conservative, mature industries

Question 5

What advice do the authors provide regarding CSBF loans?

A) apply at a major bank
B) shop around for the best deal
C) negotiate the interest rate
D) apply online and save the face to face meetings

Question 6

Which of the following describes shareholder loans?

A) equity investments that confer part ownership
B) equity investments that earn dividends
C) a type of debt financing
D) loans that can be exchanged for common shares

Question 7

According to the textbook, term loans are used by almost 50 percent of small businesses to help finance certain expenses. For which of the following could a term loan be used?

A) the purchase of fixed assets or cost of renovations
B) long-term business operational needs
C) equity investments
D) inventory and accounts receivable financing

Question 8

According to the author, what happens when you incorporate your small business?

A) you will not need to personally guarantee your business loan
B) you will receive interest payments in the form of dividends
C) you will be legally entitled to issue common shares
D) you will will not need collateral for a loan

Question 9

Which of the following are the most likely source(s) of financing for small-business start-ups?

A) angel investors
B) savings and personal loans
C) CSBF programs
D) government lending agencies

Question 10

Which of the following is least likely to be offered from a bank?

A) capital goods financing
B) short-term lending
C) equity financing
D) inventory financing

Question 11

Which type of financing involves the obligation of a business to repay a lender the full amount of a loan in addition to interest charged?

A) floating rate financing
B) debt financing
C) fixed-rate financing
D) mezzanine financing

Question 12

According to the textbook, what should you do before beginning your quest for start-up financing?

A) check your personal credit
B) chart your personal money future
C) prepare a personal financial statement
D) assess your risk tolerance

Question 13

What are the four Cs of credit?

A) consistency, character, capacity, collateral
B) capital, character, capacity, collateral
C) credit, capital, collateral, capacity
D) caution, capital, collateral, consistency

Question 14

Which of the following is NOT advisable as a strategy for dealing with your banker?

A) negotiate the best deal you can
B) find out the maximum lending limit you are eligible for
C) offer a spousal guarantee
D) negotiate to reduce your collateral

Question 15

Which of the following is the LEAST likely source of capital for a new small business?

A) refinancing your home
B) angel financing
C) entrepreneur's own savings
D) home equity line of credit

Question 16

Which of the following can provide you with a copy of your personal credit file?

A) your local bank or certified financial institution
B) Credit Bureau Services Canada
C) Equifax Canada Inc.
D) Financial Consumer Agency of Canada

Question 17

According to the text, which of the following describes a vendor statement form?

A) it will help you negotiate more favourable terms with your suppliers
B) it will help you get better rates when dealing with financial institutions
C) it is required when applying for a business or personal line of credit
D) it is similar for most types of retail and service businesses

Question 18

Which type of loan is most likely to be supported by collateral?

A) guaranteed
B) secured
C) shareholder
D) credit

Question 19

For which type of loan will a financial institution most likely request a personal guarantee?

A) common
B) operating
C) convertible
D) preferred

Question 20

Which factor has the highest weighting in your personal credit history rating?

A) current amount owed
B) number of new credit applications made
C) mix of credit
D) how payments have been made in the past

Question 21

What percentage of small business loans did chartered banks supply in 2011?

A) 7
B) 11
C) 26
D) 36

Question 22

According to the text, which factor is most important for a good credit rating?

A) timely payment of bills
B) your employment history
C) your level of unsecured credit
D) your income

Question 23

Which of the following represents your net worth in relation to the market value?

A) everything you own
B) your personal assets minus your personal liabilities
C) your personal equity minus net income
D) your personal assets plus your personal liabilities

Question 24

According to the textbook, how do banks often consider small businesses in terms of risk?

A) average risk
B) high risk
C) low risk
D) no risk

Question 25

Which of the following describes the usual fee for a personal credit report?

A) free in most cases
B) varies widely and depends on the situation
C) normally ranges from $50 to $100
D) normally ranges from $35 to $50

Question 26

What is the term for the financing process of selling your accounts receivable to another company at a discounted rate?

A) micro-lending
B) factoring
C) bootstrapping
D) bridging

Question 27

Which of the following best identifies the type of person to whom the banks will extend credit?

A) millennials
B) innovators
C) steady citizens
D) baby boomers

Question 28

Which of the following are wealthy individuals from the informal venture capital market who are willing to risk their money in someone else's business?

A) silent investors
B) venture capitalists
C) angels
D) bankers

Question 29

According to Statistics Canada, what percentage of start-ups received loans from relatives and family?

A) 73
B) 50
C) 12
D) 7

Question 30

Which of the following statements describes venture capital firms?

A) They are interested in any kind of small, new company.
B) They rarely loan money to businesses in the second stage of development.
C) They invest in conservative, mature industries.
D) They purchase equity in a business.

Question 31

Many institutions that grant credit now use a credit score called FIFO.

Question 32

According to the textbook, personal savings are the most likely source of financing for most start-ups.

Question 33

According to the textbook, paying your bills on time is one of the most important factors in the evaluation of your credit rating.

Question 34

A credit card can be used to obtain unsecured credit.

Question 35

Your personal credit rating can be obtained from the Credit Bureau of Canada at a nominal cost.

Question 36

According to the textbook, personal credit cards are an important source of financing for small and medium-sized enterprises.

Question 37

Your total personal liabilities minus your total personal assets equals your net worth.

Question 38

According to the textbook, banks view themselves as equity investors, not lenders.

Question 39

You can apply to the federal government for a Canada Small Business Financing Loan.

Question 40

Hugo Bosum (Chapter 11 case study) couldn't obtain start-up financing until he presented his business plan.

Question 41

According to the textbook, angel investors are a major source of financing for small business start- ups.

Question 42

A personal line of credit can be a good source of unsecured credit.

Question 43

The prime rate is the lowest rate of interest charged by banks on commercial loans to their most preferred customers.

Question 44

According to the textbook, a shareholder's loan is a major form of equity financing.

Question 45

Small business owners use operating loans to finance short-term business needs.

Question 46

An equity investment is normally used to finance short-term needs, such as the purchase of additional inventory.

Question 47

The four Cs of credit are cooperation, character, consistency, and collateral.

Question 48

Venture capitalists are a major source of debt financing for small business.

Question 49

In most cases, a business loan from a major financial institution requires a personal guarantee.

Question 50

According to the textbook, a bank or major financial institution will guarantee most operating loans under the Canada Small Business Financing Program.

Question 51

A well-developed vendor statement may help you to secure better credit terms.

Question 52

Banks and major financial institutions are not interested in lending to start-up firms if there is little or no collateral.

Question 53

Demand loan means that the financial institution can ask for full payment on the loan at any time for any reason.

Question 54

A fixed rate is a rate of interest that is "fixed" to the prime rate.

Question 55

In most cases, term loans are used for medium- to long-term financing of fixed assets.

Question 56

One good way to have more cash on hand is to persuade your customers to give you cash deposits when they place their orders.

Question 57

Supplier credit is a form of long-term financing that is available to business owners who have a good credit standing.

Question 58

Common shares are loans that usually earn a dividend at a fixed rate.

Question 59

The Canadian Youth Business Foundation (CYBF) offers micro-loans for start-up businesses.

Question 60

Love money refers to loans from friends, relatives, and business associates who are prepared to risk their own money in your business.

Question 61

An obligation to repay a lender the full amount of a loan in addition to interest charges is called __________ __________.

Question 62

The federal government guarantees small business loans through major Canadian financial institutions under which Canada Act? __________ __________ __________ Act

Question 63

Sometimes called a line of credit, the money used to help finance short-term business needs, such as inventory and accounts receivable financing, is called a(n) ____________ _____________.

Question 64

Something of value that is pledged to guarantee the repayment of a loan is called __________.

Question 65

Equity investments that confer part-ownership of the company and earn investors dividends are called __________ __________.

Question 66

Interest rates that change with changes in the prime rate are called _____________________.

Question 67

The four Cs of credit are capital, character, capacity, and __________.

Question 68

Personal lines of credit and credit cards represent credit that is __________________.

Question 69

List and briefly describe three strategies for dealing with bankers.

Question 70

List and briefly describe three primary types of debt financing for small business.

Question 71

Briefly explain the three types of equity financing for an incorporated business.

Question 72

Briefly explain two micro-lending programs.

Question 73

What are three advantages of a shareholder loan as a financing option?

Question 74

Briefly explain five basic guidelines you should follow when making a credit application.

Question 75

What is a net worth statement and what is its basic purpose relative to small-business financing?