Deck 11: Sources of Capital

Question 1

About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan.

Answer 1

False

Question 2

The asset base for loans usually is accounts receivable,inventory,equipment,or real estate.

Answer 2

True

Question 3

The type of funds most frequently used by businesses is externally generated funds.

Answer 3

False

Question 4

An entrepreneur contributing his or her own capital would be an example of internally generated funds.

Question 5

Banks will lend a company up to 50 percent of their accounts receivable value.

Question 6

When new equipment is being purchased or presently owned equipment is used as collateral,usually 50 to 80 percent of the value of the equipment can be financed depending on its salability.

Question 7

All ventures have some equity.

Question 8

Obtaining funds for the company in exchange for ownership is equity financing.

Question 9

Extending payment terms from suppliers is an example of generating funds internally.

Question 10

When a bank grants a line of credit,a "commitment fee" is assessed at the start of the loan.

Question 11

The personal funds of the entrepreneur are the most expensive.

Question 12

Long-term debt financing is normally used to provide working capital to finance inventory,accounts receivable,and operation of the business.

Question 13

Equity financing is often referred to as blood equity. 

Question 14

External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.

Question 15

If the amount of money provided by family members or friends is small and in the form of equity financing,they do not have an ownership position in the venture.

Question 16

When borrowing from friends and family,the entrepreneur should avoid putting agreements in writing to avoid future disagreements.

Question 17

Debt financing requires the entrepreneur to repay the amount borrowed plus interest.

Question 18

In a factoring arrangement,the bank lends the business money using inventory as collateral.

Question 19

Trust receipts are inventory loans used to finance floor plans of retailers such as automobile dealers.

Question 20

 Equity financing requires collateral.

Question 21

Private offerings involve more time,expense,and paperwork than public offerings.

Question 22

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

Question 23

The SBA's Microloan program provides short-term loans of up to $100,000 to small businesses for working capital or purchase of inventory.

Question 24

In an R&D limited partnership the liability for losses incurred is borne by the limited partners.

Question 25

To improve the chances of being approved for a bank loan,the entrepreneur should prepare a "mini" business plan for the loan committee.

Question 26

The SBA's 7(a)Loan Guaranty helps qualified small businesses obtain financing when they can't get a business loan through regular lending channels.

Question 27

Small Business Innovation Research grants are funded by federal agencies,which provide a portion of their R&D funds to small businesses.

Question 28

Most R&D limited partnerships are not successful.

Question 29

All owners,regardless of percentage of ownership,are required to personally guarantee SBA loans.

Question 30

When a new entrepreneur is unable to obtain an SBA loan,they turn to a commercial bank.

Question 31

Any patent rights on technology developed in SBIR grants are the property of the federal government.

Question 32

The SBA guarantees all loans for 100 percent of the loan amount.

Question 33

 The costs of establishing R&D limited partnerships are greater than conventional financing.

Question 34

Installment loans are typically given for a period of 30-40 days.

Question 35

Research and development limited partnerships provide small businesses funds from investors looking for tax shelters.

Question 36

The SBA's Microloan program is their primary business loan program.

Question 37

The sponsoring company in a R&D limited partnership is the limited partner.

Question 38

Long-term loans from commercial banks are usually readily available to small startup firms.

Question 39

The SBA 7(a)loan program has a maximum loan amount of $5 million.

Question 40

SBA 7(a)loans can be used for such things as equipment and land.

Question 41

________ financing entails obtaining funds for the company in exchange for ownership.

A) Bootstrap
B) Equity
C) Debt
D) Commercial

Question 42

Regulation D regulates private offerings.

Question 43

 In a factoring arrangement,the factor:

A) takes no risk and sustains no losses.
B) "buys" the accounts receivables of a firm.
C) receives no interest payment.
D) pays a premium for the firm's assets.

Question 44

When the finished goods inventory is the asset base for a loan:

A) a trust receipt is not generally used.
B) factoring may be arranged.
C) about 50 percent of it can be financed.
D) all of the inventory can be financed.

Question 45

________ financing does not require any collateral.

A) Commercial bank loan
B) Line of credit
C) Equity
D) Character loan

Question 46

When using private placement funding the entrepreneur must disclose all information as accurately as possible.

Question 47

When the bank advances a large percentage of the invoice price of goods and is paid on a pro-rata basis when inventory is sold this is called:

A) a trust receipt.
B) a factoring arrangement.
C) an accounts payable loan.
D) a sale-leaseback arrangement.

Question 48

Bootstrap financing helps avoid some of the problems of external capital like decreases in flexibility and increased impulse to spend.

Question 49

Bootstrap financing involves using any possible method,such as discounts for volume purchasing,to conserve cash.

Question 50

Typically,debt financing requires:

A) an asset as collateral.
B) a degree of ownership in the firm.
C) reduction of short-term assets.
D) reduction of working capital.

Question 51

Rule 506 goes one step further than Rule 505 by allowing an issuing company to sell an unlimited number of securities to 35 investors and an unlimited number of accredited investors and relatives of issuers.

Question 52

Bootstrap financing decreases the company's flexibility and drive for sales.

Question 53

Which of the following is not an example of internal financing

A) Profits
B) Accounts receivable
C) Credit from suppliers
D) Equity financing

Question 54

Funds obtained from ________ are the least expensive in terms of cost and control.

A) the entrepreneur's personal resources
B) friends and family
C) commercial banks
D) private placement

Question 55

The most frequently used source of short-term funds when collateral is available is:

A) SBA Microloans.
B) SBA 7(a) loans.
C) R&D limited partnerships.
D) commercial bank loans.

Question 56

Outside capital should be sought only after all possible internal sources of funds have been explored.

Question 57

Under Rule 504 of Regulation D,a company can sell up to $1,000,000 of securities to any number of investors,regardless of their sophistication,in any 12-month period.

Question 58

The most frequently used source of funds for start-ups is:

A) the entrepreneur's personal funds.
B) bank loans.
C) credit cards.
D) SBA loans.

Question 59

When using equity financing from family and friends:

A) business arrangements should be in good faith.
B) details such as terms of the investment and rights of the investor need not be in writing.
C) they can be more patient than other investors in when they expect a return on investment.
D) since the amount of money is usually small, they do not have an ownership position in the venture.

Question 60

A bank may finance up to ________ of a company's accounts receivable.

A) 50 percent
B) 60 percent
C) 70 percent
D) 80 percent

Question 61

The Small Business 7(a)Guaranty program:

A) guarantees up to 50 percent of the amount loaned.
B) helps qualified small businesses obtain financing when they cannot obtain it through regular lending channels.
C) has a maximum loan amount of $10 million.
D) loans can be used only for machinery and equipment, and land and building.

Question 62

Equity partnerships,royalty partnerships,and joint ventures are used in the ________ stage of limited partnerships to reap the benefits of the effort.

A) funding
B) development
C) exit
D) All of the answers are correct.

Question 63

Which of the following is not one of the five Cs of lending

A) Caution
B) Character
C) Conditions
D) Capacity

Question 64

Research and development limited partnerships provide funds for entrepreneurs in high-tech fields through:

A) debt from lenders.
B) equity from present owners.
C) investors looking for tax shelters.
D) cash from internal operations.

Question 65

Which of the following types of credit does not require the pledging of an individual's collateral or a cosigner

A) Line of credit
B) Character loan
C) Trust receipts
D) Mortgage loan

Question 66

What type of cash flow financing loan can make funds available for up to 10 years

A) Character loans
B) Real estate loans
C) Long-term loans
D) Installment loans

Question 67

In ________ the entrepreneur sells equipment to the lender then arranges for its continued use.

A) a factoring arrangement
B) trust receipts
C) cash flow financing
D) a sale-leaseback arrangement

Question 68

In a straight commercial loan funds are typically used for what time period

A) Less than 30 days
B) 30-90 days
C) 180 days
D) Up to one year

Question 69

When a company receives an SBIR grant,any patent rights and software generated belong to:

A) the Federal Government.
B) the bank securing the loan.
C) the Small Business Administration.
D) the entrepreneur.

Question 70

Most established R&D limited partnerships:

A) allow a minimum amount of equity dilution.
B) are successful.
C) increase, to some extent, the risks involved in the venture.
D) have weak financial statements due to lack of outside capital.

Question 71

Which of the following is not true about the costs and benefits of R&D limited partnerships

A) Most are not successful
B) Risk is reduced
C) Costs can be high to create the partnership
D) Most take less than three months to establish

Question 72

During Phase II of an SBIR grant up to ________ can be awarded.

A) $100,000
B) $500,000
C) $750,000
D) $1,000,000

Question 73

The SBA's primary business loan program is:

A) the Microloan.
B) the SBIR.
C) the 7(a) loan.
D) the 504.

Question 74

A trust receipt is a:

A) type of accounts payable loan.
B) type of real estate loan.
C) type of inventory loan.
D) type of cash flow financing loan.

Question 75

Which of the following is not a form of cash flow financing

A) Trust receipt
B) Character loan
C) Line of credit
D) Installment loan

Question 76

All owners of ________ or more are required to personally guarantee an SBA loan.

A) 20 percent
B) 30 percent
C) 35 percent
D) 40 percent

Question 77

Mortgage financing is another term for:

A) large equipment asset-based financing.
B) real-estate asset-based financing.
C) sale-leaseback financing.
D) unsecured financing.

Question 78

In limited partnerships:

A) the liability for any loss incurred is borne by the company.
B) the sponsoring company acts as the general partner.
C) there is no special tax benefit for partners.
D) the sponsoring company does not retain rights to use any base technology to develop other products.

Question 79

In which phase of the SBIR grant process are funds used to create a prototype of a product or service

A) Phase I
B) Phase II
C) Phase III
D) Phase IV

Question 80

A "commitment fee" is used in arranging for a:

A) commercial loan.
B) character loan.
C) installment loan.
D) line of credit.