Question 1

Small Business Administration loans include guaranty loans and loans directly from the SBA.

Accepted Answer

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Question 2

Asset-based lending is a type of financing secured by assets such as equipment and inventory.

Accepted Answer

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Question 3

Common stock can be sold to underwriters, but they do not guarantee the sale of securities.

Accepted Answer

Underwriters typically guarantee the sale of securities by purchasing the securities from the issuer and then selling them to the public, thus assuming the risk of sale.

Question 4

Private placement is the selling of stock to select venture capitalists.

Accepted Answer

Private placement refers to the sale of securities to a relatively small number of select investors as a way of raising capital, not exclusively to venture capitalists, but also to institutions or accredited investors.

Question 5

A source of early-stage capital financing for a company is financing from commercial banks.

Accepted Answer

Commercial banks typically provide later-stage financing or loans to established companies with a proven track record. Early-stage capital financing is often obtained through angel investors, venture capitalists, or crowdfunding platforms.

Question 6

Anna's new business looks like it can grow quickly and become profitable in its first year.  Anna will likely find  _____ possible sources of financing than those with less potential for growth and profits.

Accepted Answer

Businesses with high growth potential and profitability typically attract more interest from investors and lenders, leading to many more possible sources of financing.

Question 7

The amount of trade credit available to a new company is dependent on the supplier's confidence in the firm and not the type of business.

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Question 8

Around 5 percent of the business plans reviewed by venture capitalists are funded.

Accepted Answer

Less than 1% of business plans submitted to venture capitalists are actually funded. The vast majority are rejected for various reasons, including lack of market potential, poor business model, or the team's inability to execute.

Question 9

The private sale of a firm's common stock is regulated by the Securities and Exchange Commission.

Accepted Answer

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Question 10

Commercial investors are sometimes called business angels.

Accepted Answer

Commercial investors and business angels are not the same thing. Business angels are typically high net worth individuals who invest their own money in start-up companies, while commercial investors are typically institutions or organizations that invest in a wide range of businesses.

Question 11

State and local governments are becoming less involved in financing new businesses.

Accepted Answer

State and local governments are increasingly involved in financing new businesses through various programs such as grants, tax incentives, and direct investment to stimulate economic growth and job creation.

Question 12

For entrepreneurial ventures with the potential for becoming significant businesses, initial public offerings have been the fastest-growing source of financing over the past two decades.

Accepted Answer

Venture capital has been a faster-growing source of financing for entrepreneurial ventures with high growth potential, especially in the early stages before they reach the point of considering an initial public offering (IPO).

Question 13

When a stock sale is restricted to private placement, an entrepreneur can avoid many of the demanding requirements of the securities laws.

Accepted Answer

Private placement exemptions allow for the sale of securities without having to register with the Securities and Exchange Commission (SEC), which can reduce the regulatory burden on the entrepreneur. However, there are still certain requirements that must be met, such as restrictions on who can purchase the securities and how they can be marketed.

Question 14

Both wholesalers and equipment manufacturers/suppliers can be used as sources of funds.

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Question 15

Qualified small businesses that cannot obtain business loans through normal lending channels can get loans directly from the SBA through its 7(a) Loan Guaranty Program.

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Question 16

A small business that needs to purchase real estate could apply for a 7(a) guaranty loan.

Accepted Answer

The Small Business Administration's 7(a) loan program does offer guaranty loans for businesses to purchase real estate.

Question 17

If a company has a signed purchase order from a creditworthy customer and the gross profit margin on the order is anticipated to be 36 percent, purchase-order financing is likely.

Accepted Answer

Purchase order financing is typically used when a company has a purchase order from a customer but lacks the necessary funds to purchase the materials or goods needed to fulfill the order. In this scenario, the company has a signed purchase order from a creditworthy customer and a healthy gross profit margin, making it a good candidate for purchase order financing.

Question 18

Companies that have business dealings with a new firm are possible sources of funds for financing inventory and equipment.

Accepted Answer

Companies that have business relationships with a new firm can provide funding for inventory and equipment. This is because they may be interested in fostering a strong relationship with the new firm or may see it as a profitable opportunity.

Question 19

A company that has over 100 employees with locations in several states is typically the type of company in which business angels make an investment.

Accepted Answer

Business angels typically invest in early-stage startups or small businesses, rather than established companies with over 100 employees and multiple locations. They often look for high-growth potential and innovative ideas, which can be difficult to find in larger companies.

Question 20

Crowdfunding works strictly with individual donations made over the Internet.

Accepted Answer

Crowdfunding can also involve contributions from organizations or institutions, such as corporations or foundations.

Quiz 12: A Firm S Sources of Financing