Question 1

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

Accepted Answer

Venture bank lenders, like other investors, can also generate returns through equity participation, fees, and other financial arrangements with the companies they invest in, not solely from interest payments and return of the loan principal.

Question 2

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

Accepted Answer

The 7(a) loan has been the SBA's primary loan program, providing financing for small businesses that may be otherwise unable to obtain funding through conventional lending channels.

Question 3

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

Accepted Answer

Venture banks specialize in providing debt financing to start-ups that have already received equity financing from professional venture capital firms, which sets them apart from traditional commercial banks.

Question 4

Warrants allow lenders to buy equity at a specified price.

Accepted Answer

Warrants are financial instruments that give the holder the right, but not the obligation, to buy specified amounts of securities (usually equity) at a certain price, within a certain period of time. Lenders often use warrants as a way to increase their potential return on a loan by giving them the option to buy equity in the borrower's company at a pre-determined price.

Question 5

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.

Accepted Answer

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 6

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

Accepted Answer

Warrants are not a debt instrument. They are a type of security that gives the holder the right to buy a company's stock at a certain price within a specific time frame. Commercial banks may still use warrants when financing entrepreneurial ventures, but they would not be classified as a debt instrument in this context.

Question 7

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.

Accepted Answer

Commercial banks do not typically receive warrants as part of their returns. They earn income from interest on loans and may also receive fee income from services provided to customers.

Question 8

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

Accepted Answer

The SBA does not directly approve loans in its microloan program; instead, it provides funds to intermediary lenders who then administer the loans to eligible small businesses.

Question 9

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.

Accepted Answer

While collateral is an important factor in the lending process, it is not the most important factor. Lenders also consider the borrower's credit history, income, and debt-to-income ratio among other factors to determine their willingness to lend, as well as the amount and terms of the loan.

Question 10

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

Accepted Answer

The statement correctly describes the purpose of the Small Business Administration (SBA) as established by an act of Congress.

Question 11

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

Accepted Answer

This statement is not necessarily true. The compensation structure of commercial loan officers can vary, and while some may receive incentives for financing riskier or early-stage ventures, others may prioritize lower risk loans to meet performance metrics or to minimize defaults. The decision to finance an early-stage venture ultimately depends on various factors, including the borrower's business plan, financial projections, and creditworthiness.

Question 12

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.

Accepted Answer

While both investors and commercial lenders seek returns on their investments, the nature of their financing and expectations differ. Investors typically provide equity financing, meaning they take a stake in the company and its potential future profits. Lenders provide debt financing, meaning they expect the borrowed funds to be repaid with interest. Start-up firms may find it easier to attract investors who are willing to take a risk on a new venture, while commercial lenders may be more interested in established businesses with a proven track record.

Question 13

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

Accepted Answer

Loan restrictions make it difficult for entrepreneurs to obtain funding from commercial lenders, therefore it is true that it is prohibitive for them.

Question 14

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

Accepted Answer

The answer of Credit cards issued to start-ups have proven...

Question 15

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.

Accepted Answer

Commercial loan officers assess the creditworthiness of businesses based on financial history, collateral, and business plans, among other factors. New ventures often present higher risks due to lack of history, making officers less willing to lend on the same terms as established businesses.

Question 16

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.

Accepted Answer

The statement affirms that despite the risks and costs, some start-ups still opt for facilitators or up-front fee solicitors as a source of funds due to prolonged funding-raising processes.

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

The answer of The Small Business Administration was created by...

Question 19

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

Accepted Answer

The SBA's venture capital program primarily operates through Small Business Investment Companies (SBICs), not Community Development Financial Institutions (CDFIs). CDFIs focus on providing financial services in low-income communities and to people who lack access to financing.

Question 20

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.

Accepted Answer

Bank debt is generally not accessible to start-ups with less than two years of operating results because they lack the history and track record necessary to qualify for a loan. Small Business Administration loans may be an exception, as they are designed to support small businesses with limited access to credit.

Quiz 13: Other Financing Alternatives

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

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

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

Warrants allow lenders to buy equity at a specified price.

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.

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

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.

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

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.

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

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

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.

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

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

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.

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.

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

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

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

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.