Deck 12: Other Financing Alternatives

Question 1

Commercial banks receive a portion of their returns from warrants in addition to the receipt of interest and the repayment of the principal that was lent.

Answer 1

False

Question 2

Commercial loan officers have the expertise to project new venture's business successes,and thus are as willing to make funds available to entrepreneurs on the same basis as other businesses.

Answer 2

False

Question 3

The SBA's role in its microloan credit program is to approve the loans and guarantee up to 85% of the loan value.

Answer 3

False

Question 4

Among start-ups,it is widely understood that bank debt (outside ofSmall Business Administration loans),is not a very realistic source of financing for ventures with less than two years operating results.

Question 5

Compensation received by commercial loan officers makes them more likely to finance early-stage ventures.

Question 6

Collateral plays an important role in determining the willingness to lend and the amount and terms of the loan,making it the most important factor in the lending process.

Question 7

The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs).

Question 8

By an act of Congress,the Small Business Administration (SBA)was created for the purpose of fostering the initiation and growth of small businesses.

Question 9

Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $35,000 to be used for general purposes.

Question 10

Despite the high risk and costs of using a facilitator or up-front fee solicitor to obtain financing,many start-ups never-the-less seek them as a source of funds due to the length of time it takes to raise new funds.

Question 11

The Small Business Administration was created by an Act of Congress in 2003.

Question 12

Microloans in the SBA credit program are made by not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs).

Question 13

Because investors and commercial lenders both seek returns on the funds given to start-up firms,entrepreneurs can obtain financing as easily from either source.

Question 14

Warrants allow lenders to buy equity at a specified price.

Question 15

Unlike traditional commercial banks,venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.

Question 16

Warrants are a debt instrument frequently used by commercial banks when financing entrepreneurial ventures.

Question 17

The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of the loan principal.

Question 18

Because of loan restrictions,obtaining funding from commercial lenders is prohibitive for entrepreneurs.

Question 19

Credit cards issued to start-ups have proven to be an alternative source of start-up financing.

Question 20

The 7(a)loan traditionally has been the SBA's primary loan program

Question 21

Direct public offerings have recently become a serious challenge to traditional venture capital firms.

Question 22

Personal credit cards have proven to be a source of financing for start-up firms for all of the following reasons except?

A)credit card debt is not based on the firm'sability to repay,but rather the individual card holder's ability to repay
B)teaser rates afford initial low cost borrowing
C)balance transfer at below-prime rates
D)credit card debt can create problems if the firm doesn't generate cash flows to cover credit card payments once low introductory rates expire

Question 23

When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The general impression the entrepreneur makes on the potential lender or investor is known as:

A)capacity
B)capital
C)collateral
D)conditions
E)character

Question 24

When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The ability of the entrepreneur to repay borrowed funds is known as:

A)capacity
B)capital
C)collateral
D)conditions
E)character

Question 25

Bank debt is not a realistic source of financing for start-ups due to all of the following reasons except?

A)a large portion of the assets are intangible and provide no collateral
B)payables either don't yet exist or its history is inadequate
C)the start-up'sdependence on a small number of irreplaceable people is nota good match to demand deposits or other bank liabilities
D)receivables collection track record is incomplete
E)in the event of a default,it is now plausible for the bank to install a management team to help right the operations

Question 26

When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The money the entrepreneur has invested in the business,which is an indication how much is at risk if the business should fail is known as:

A)capacity
B)capital
C)collateral
D)conditions
E)character

Question 27

For the 504 loan,the SBA approves and guarantees the development company's portion of the debt but does not guaranteed the debt of the participating commercial bank.

Question 28

A provision that allows lenders to acquire equity at a specific price is known as a(n):

A)factor
B)warrant
C)venture lease
D)equity carve-out

Question 29

All of the following are common loan restrictions except?

A)limits on total debt
B)limits on total equity
C)restrictions on dividends or other payments to owners and/or investors
D)restrictions on additional capital expenditures
E)performance standards on financial ratios

Question 30

Unlike traditional commercial banks,venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.In return for providing additional debt financing,these venture banks receive in return all of the following except?

A)interest payments
B)repayment of principal
C)implementation of loan restrictions
D)tax breaks on the interest
E)right to buy equity at a specific price

Question 31

SBA 7(a)loans are made usually for 1 to 3 years in amounts up to $5,000,000,require collateral,and can be used for most business purposes.

Question 32

In a factoring arrangement,the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.

Question 33

When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The focus on the intended purpose of the loan is known as:

A)capacity
B)capital
C)collateral
D)conditions
E)character

Question 34

In the context of new ventures,what does SBA stand for?

A)Standard Business Arrangement
B)Small Business Association
C)Small Business Administration

Question 35

Receivables lending is the use of receivables as collateral for an equity issue.

Question 36

With venture leasing,one component of the return to the lessor is the opportunity to take an equity interest in the venture.

Question 37

Factoring is the selling of receivables to a third party at a discount from their face value.

Question 38

When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The guarantees,or additional forms of security (such as assets),the entrepreneur can provide the lender is known as:

A)capacity
B)capital
C)collateral
D)conditions
E)character

Question 39

Factoring is the sale of payables to a third party at a discount to their face value.

Question 40

The SBA approves the standard 7(a)loan and guarantees up to 85% of the loan value.

Question 41

Commercial banks,credit unions,and/or financial services firms are lenders in which of the following SBA credit programs?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 42

In which of the following credit programs is the SBA role in the loan one of providing a direct loan to a community organization,which reloans the funds in small amounts?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 43

Concerning factoring,all of the following are true except:

A)factors prefer business over consumer accounts
B)factoring is done at a discount to the third party purchaser
C)factoring discounts are often a function of the riskiness of the receivables
D)factoring speeds the inflow of cash to the seller of the receivables
E)receivable lending is the process of factoring

Question 44

By an act of Congress,the Small Business Administration (SBA)was created in which one of the following years?

A)1953
B)1968
C)1973
D)1985
E)1993

Question 45

Commercial banks,jointly with not-for-profit Certified Development Companies,are lenders in which of the following SBA credit programs?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 46

Small Business Investment Companies (SBICs)are lenders in which of the following SBA credit programs?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 47

In which of the following credit programs does the SBA borrow money to be lent Small Business Investment Companies (SBICs)and guarantees payment to investors?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 48

Which of the following is not a Small Business Administration program?

A)loan guaranty programs
B)certified and preferred lender programs
C)low documentation loan programs
D)energy and conservation loan programs
E)certified financial planner funding programs

Question 49

Which of the following is not a source of debt funding for a start-up firm?

A)accounts payable
B)vendor financing
C)factoring
D)trade notes
E)leasing

Question 50

Selling receivables to a third party at a discount from their face value is referred to as:

A)factoring
B)receivables lending
C)venture banking
D)vendor financing
E)mortgage lending

Question 51

Which of the following is/are not a type of leasing arrangement?

A)factoring
B)capital lease
C)venture lease
D)mortgage lease
E)both a and d

Question 52

In which of the following credit programs does the SBA approve a loan and guarantees up to 85% of loan value?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 53

Arranging for partial ownership as a component of the expected return to a lessor is known as:

A)venture leasing
B)capital leasing
C)investment leasing
D)none of the above

Question 54

Not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs)are lenders in which of the following SBA credit programs?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 55

Venture banks seek loan returns from:

A)interest received
B)principal repayments
C)warrants being exercised
D)all of the above
E)none of the above

Question 56

Which one of the following is not a current Small Business Administration (SBA)credit program?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 57

Which is not a duty of the Small Business Administration?

A)provide capital and credit to entrepreneurial start-ups
B)guaranteeing general business loans
C)provide equity financing for start-ups
D)help create new jobs in small businesses
E)help small firms obtain Federal contracts

Question 58

In which of the following credit programs does the SBA approve and guarantee a not-for-profit Certified Development Company's portion of the debt?

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan

Question 59

The use of receivables as collateral for a loan is known as:

A)capital leasing
B)warehouse financing
C)receivables lending
D)a microloan
E)venture leasing