Deck 11: Sources of Capital

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

All ventures have some equity.

Question 5

The most popular means of obtaining capital is from friends and family.

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

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

Equity financing requires collateral.

Question 15

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

Question 16

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

Question 17

Extending payments to suppliers is an example of generating funds internally.

Question 18

The personal funds of the entrepreneur are the most expensive.

Question 19

Banks will lend a company up to 50% of their account receivable value.

Question 20

A short-term,internal source of funds can be obtained by reducing short-term assets such as inventory,cash,and other working-capital items.

Question 21

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

Question 22

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

Question 23

Most R&D limited partnerships are not successful.

Question 24

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 25

The funds for a SBA guaranteed loan are provided by the federal government.

Question 26

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

Question 27

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

Question 28

The five C's of credit are character,capacity,collateral,capital and competence.

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

SBA guaranteed loans are guaranteed for 100 percent of the loan amount.

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

________ financing does not require any collateral.

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

Question 43

Which of the following is not an example of internal financing?

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

Question 44

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 45

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

Question 46

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

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

Question 47

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

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

Question 48

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 49

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 50

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 have an ownership position in the venture.

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

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 54

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

Question 55

Regulation D regulates private placements.

Question 56

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 57

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 58

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

Question 59

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 60

When 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 61

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 62

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 63

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

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

Question 64

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

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

Question 65

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 66

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 67

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 68

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 69

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 70

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 71

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 72

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 73

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 these.

Question 74

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 75

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 76

The SBA's primary business loan program is:

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

Question 77

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 78

Which of the following is not one of the five C's of lending?

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

Question 79

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 80

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 at least 3 months to establish