Question 1

A common financial problem in a small business is:&#10;A) taxation of profits.&#10;B) punitive conditions in government grants.&#10;C) lack of knowledge of financing sources.&#10;D) an excess of personal funds.

Accepted Answer

Small business owners often struggle to identify and access financing sources, which can lead to cash flow problems and hinder growth. Taxation of profits and punitive conditions in government grants may be issues for some businesses, but lack of knowledge of financing sources is a more common financial problem. An excess of personal funds is not typically a problem for small businesses.

Question 2

The informal risk-capital market refers to:&#10;A) business angels.&#10;B) low-risk high-return business ventures.&#10;C) handshake borrowing.&#10;D) other businesses who will help a new entry into the market.

Accepted Answer

The informal risk-capital market typically refers to business angels, which are wealthy individuals who provide funding for early-stage or start-up businesses. They often take on a more hands-on role compared to traditional venture capitalists and may provide more flexible terms. The other choices do not accurately describe the informal risk-capital market.

Question 3

A method of financing that allows the business to withdraw and deposit funds on an ongoing basis as long as the total amount withdrawn, at any point in time, does not exceed the approved amount is called:

A) traditional bank loan.
B) personal guarantee.
C) line of credit.
D) mortgage.

C

Accepted Answer

A line of credit is a type of financing that allows businesses to withdraw and deposit funds on an ongoing basis, up to a set approved amount. This provides flexibility for the business to access necessary capital as needed, without having to go through the process of applying for a new loan each time. This is often a good option for businesses with fluctuating or seasonal cash flow needs.

Question 4

&#34;Cash is king&#34; refers to the need to:&#10;A) market effectively.&#10;B) pay bills as they come due.&#10;C) fund promotional events.&#10;D) hire competent employees.

Accepted Answer

"Cash is king" means that having enough cash on hand is crucial for a business to survive and pay its bills on time. It's more important to have enough cash available to cover expenses than to spend money on marketing, events, or hiring employees.

Question 5

Trade credit is a form of:&#10;A) cost-cutting.&#10;B) interest payment.&#10;C) debt financing.&#10;D) equity financing.

Accepted Answer

Trade credit is a form of debt financing, where a business receives goods or services from a supplier but is allowed to pay for them at a later date, typically within 30 to 90 days. This can be a cost-effective way to obtain goods and services without incurring immediate cash expenditures. However, it does represent a form of debt that needs to be repaid, often with interest.

Question 6

The majority of new businesses in Canada rely on:&#10;A) government grant programs.&#10;B) small business funding from a chartered bank.&#10;C) self-funding.&#10;D) supplier credit.

Accepted Answer

The majority of new businesses in Canada rely on self-funding, which involves using personal savings, investments or loans from friends and family to start the business. While government grant programs and small business funding from a chartered bank can be helpful sources of funding, they are not as commonly used as self-funding. Supplier credit is also not a common source of funding for new businesses.

Question 7

Investors are most likely to want to know:&#10;A) the product price structure of key competitors.&#10;B) the identity of key employees.&#10;C) how much money is needed by the business.&#10;D) the owners' vacation plans.

Accepted Answer

Investors are interested in knowing how much money is needed by the business because they would want to assess the viability of the business and ensure that their investment will yield returns. The product price structure of key competitors and the identity of key employees may also be important, but they are secondary to the amount of money needed by the business. The owners' vacation plans are irrelevant to the investor's decision-making process.

Question 8

Financing difficulties of small business are often:&#10;A) a symptom of small business as a cause of unemployment.&#10;B) a symptom of management problems.&#10;C) because there are too many small businesses.&#10;D) due to bias against entrepreneurs.

Accepted Answer

Financing difficulties of small business are often a symptom of management problems, such as poor credit history, lack of financial planning, and inadequate knowledge of financial management. While external factors such as economic conditions can also play a role, addressing these internal issues is often necessary for small businesses to secure financing.

Question 9

When an entrepreneur solicits small investments and/or donations from the public to fund the start-up of their company, this is referred to as:&#10;A) bootstrap financing.&#10;B) using corporate investors.&#10;C) using business angels.&#10;D) crowd-funding.

Accepted Answer

Soliciting small investments or donations from the public to fund a start-up is referred to as crowd-funding. Choices A and C are also methods of raising capital, but they refer to specific types of investors (the entrepreneur themselves or experienced individuals looking to invest in start-ups, respectively) rather than a broad public audience. Using corporate investors (choice B) typically involves seeking larger investments from established companies rather than small donations from the general public.

Question 10

&#34;Burn rate&#34; refers to:&#10;A) the frequency with which new businesses in the industry fail.&#10;B) employee turnover.&#10;C) how much money is being spent each month.&#10;D) the rate at which inventory is being sold.

Accepted Answer

Burn rate refers to how much money a company is spending each month, usually in comparison to how much revenue they are generating. It is often used to measure a startup's ability to sustain itself before it becomes profitable.

Question 11

The start-up phase financing period will generally be:&#10;A) two months.&#10;B) one to three months.&#10;C) one to two years.&#10;D) two to six months.

Accepted Answer

The answer of The start-up phase financing period will generally...

Question 12

A disadvantage of equity financing is:&#10;A) the pressure to pay dividends.&#10;B) dilution of ownership interest.&#10;C) the appearance of failure.&#10;D) interest expense.

Accepted Answer

The answer of A disadvantage of equity financing is:&#10;A) the...

Question 13

Small business owners sometimes use personal credit cards to:&#10;A) pay employees.&#10;B) repay bank borrowing.&#10;C) control interest expense.&#10;D) finance the start-up phase.

Accepted Answer

The answer of Small business owners sometimes use personal credit...

Question 14

Capital requirements = Start-up costs plus Operating requirements minus:&#10;A) owner's knowledge, skills, and abilities.&#10;B) owner's character, credit, and credentials.&#10;C) owner's assets available for investment.&#10;D) owner's focus on competing businesses.

Accepted Answer

The answer of Capital requirements = Start-up costs plus Operating...

Question 15

Development financing is often provided by:&#10;A) provincial government aid programs.&#10;B) social networking.&#10;C) tax incentive programs.&#10;D) venture capitalist.

Accepted Answer

The answer of Development financing is often provided by:&#10;A) provincial...

Question 16

A personal net worth and capability statement:&#10;A) is similar to a business balance sheet.&#10;B) will usually justify borrowing.&#10;C) is no one's business.&#10;D) is more descriptive than numeric.

Accepted Answer

The answer of A personal net worth and capability statement:&#10;A)...

Question 17

The type of financing sought is likely to be dictated by:&#10;A) the strength of competition.&#10;B) the entrepreneur's commitment to the venture.&#10;C) the type of opportunity a business is pursuing.&#10;D) the nature of the target market.

Accepted Answer

The answer of The type of financing sought is likely...

Question 18

Choosing a particular lender may be most influenced by:&#10;A) length of the term and the use of the funds.&#10;B) the entrepreneur's experiences in a previous venture.&#10;C) friendliness and understanding of the lender.&#10;D) the need for privacy.

Accepted Answer

The answer of Choosing a particular lender may be most...

Question 19

Small businesses need financing:&#10;A) to reduce the risk of losing their personal funds.&#10;B) in order to support price competition.&#10;C) to keep their administrative offices modern-looking.&#10;D) to fund a start-up and as capital for ongoing operations.

Accepted Answer

The answer of Small businesses need financing:&#10;A) to reduce the...

Question 20

CYBF refers to:&#10;A) Critical Youth Balanced Funding.&#10;B) Cover Your Business Faults.&#10;C) Canadian Youth Business Foundation.&#10;D) Canadian Young Business Founders.

Accepted Answer

The answer of CYBF refers to:&#10;A) Critical Youth Balanced Funding.&#10;B)...

Question 21

&#34;Collateral&#34; refers to:&#10;A) the benefits received form dealing with a particular lender.&#10;B) other business being done with the lender.&#10;C) security given for a loan.&#10;D) alternative sources of funding.

Accepted Answer

The answer of &#34;Collateral&#34; refers to:&#10;A) the benefits received form...

Question 22

A business should provide a lender with the following:&#10;A) up to date information.&#10;B) sample products for the lenders own use.&#10;C) personal information about employees.&#10;D) gifts to show their appreciation.

Accepted Answer

The answer of A business should provide a lender with...

Question 23

Demand loans are usually most appropriate for:&#10;A) funding inventory.&#10;B) when cash flow is a problem.&#10;C) delivery equipment.&#10;D) situations where lenders and borrowers are good friends.

Accepted Answer

The answer of Demand loans are usually most appropriate for:&#10;A)...

Question 24

A lender will want to know the following in order to assess an applicant's management ability:&#10;A) performance evaluations received by the applicant when they were employed.&#10;B) the applicant's level of knowledge about the business.&#10;C) the applicant's personal interests and hobbies.&#10;D) how well-liked the applicant is by their employees.

Accepted Answer

The answer of A lender will want to know the...

Deck 6: Financing the Small Business