Question 1

Money contributed to businesses in return for part ownership of the business is called a(n)_____.

Accepted Answer

Money contributed to businesses in return for part ownership of the business is called equity capital.

Question 2

Which of the following describes angel investors?

Accepted Answer

Angel investors are wealthy individuals who invest their own money in companies in relatively early stages of development. They typically provide funding in exchange for equity in the company.

Question 3

_____ is money from selling part of a business to people who are not and will not be involved in the management of the business.

Accepted Answer

Outside equity refers to the money raised from selling part of a business to external investors who are not involved in the management of the business. Dividend refers to the portion of the profits paid out to shareholders. Bond refers to a loan taken out by a company, and equity capital refers to the money raised by selling ownership stake to shareholders.

Question 4

A charge for the use of money,usually figured as a percentage of the principal is called _____.

Accepted Answer

Interest is a charge for the use of money, usually figured as a percentage of the principal. Dividends are payments made by a corporation to its shareholders. Taxes are mandatory fees imposed by the government. Chargeback is a transaction reversal requested by the cardholder or buyer.

Question 5

In the Small Business Administration guaranteed loan payment programs,the owners must be _____ before they qualify.

Accepted Answer

The Small Business Administration (SBA) requires that applicants must first be turned down by a bank before they can qualify for an SBA guaranteed loan. This demonstrates that they are unable to secure financing through conventional means.

Question 6

Which of the following is true of an LLC?

Accepted Answer

LLCs have the flexibility to choose how they want to be taxed, either as a corporation or a partnership. This is one of the advantages of forming an LLC, as it allows the owners to choose the tax treatment that best suits their needs. Option A is incorrect as LLCs have more structure and accountability compared to partnerships. Option C is incorrect because LLCs have some freedom to choose taxation. Option D is incorrect because S-corporations have more restrictions than LLCs in terms of ownership and the number of shareholders.

Question 7

The number one source of financing for small businesses is from _____.

Accepted Answer

The owners themselves are typically the primary source of financing for small businesses, often contributing personal savings or taking out loans against personal assets. Angel investors, government programs, and banks may also be sources of financing, but they are less commonly relied upon than the owners themselves.

Question 8

An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area is referred to as a(n)_____.

Accepted Answer

A community development organization is specifically designed to help increase economic activity within a certain geographic area. The SBA authorizes these organizations to make insured loans to small businesses in order to promote economic growth within that area. The other choices (accelerator, economic cooperation organization, and limited partnership) do not fit this specific definition.

Question 9

Investing in multiple investments of differing risk profiles for the purpose of reducing overall investment risk is called _____.

Accepted Answer

Diversification involves investing in multiple investments of differing risk profiles to reduce overall investment risk. By spreading investments across various types of assets and sectors, the impact of any single investment's negative performance on the overall portfolio is minimized.

Question 10

In general,all forms of business organization can be categorized based on the owners' responsibilities for the organization's liabilities,and _____.

Accepted Answer

The owners' responsibilities for the organization's liabilities is a key factor in determining the type of business organization, but the other options listed are not significant factors in determining business organization. Meanwhile, the way a business is taxed (such as a pass-through entity or a corporation) is a major determining factor in business organization.

Question 11

A(n)_____ is a legal obligation to pay money in the future.

Accepted Answer

A debt is a legal obligation to pay money in the future. Equity capital refers to ownership in a company, a stake could refer to ownership or a share of something, and a gift is not an obligation to pay money.

Question 12

The level of probability that an investment will not produce expected gain is called _____.

Accepted Answer

Risk refers to the level of uncertainty involved in an investment or business decision. It represents the possibility of losing some or all of the investment made. Factors that contribute to risk include market fluctuations, economic conditions, competition, and other variables that are beyond one's control. Therefore, understanding the level of risk associated with an investment is crucial in making informed decisions. Choices A and B refer to sources of income or return on investment, while diversification is a strategy to minimize the overall risk of a portfolio by investing in different assets or sectors. None of them captures the concept of the likelihood of losing money.

Question 13

A legal "artificial" entity that is formed by filing specific documents with a state government is called a _____.

Accepted Answer

Corporations are legal entities that are created by filing specific documents with a state government, typically for the purpose of conducting business. Sole proprietorships and partnerships are not considered artificial entities, as they do not require any formal filing or documentation to be considered a business entity. General partnerships, like partnerships in general, are not considered separate legal entities, as the partners are considered jointly responsible for the business and its liabilities.

Question 14

Any valuable asset that is donated to a business without any obligation to repay or to give any ownership interest is called a(n)_____.

Accepted Answer

A gift is a valuable asset that is voluntarily donated to a business without any expectation of repayment or ownership interest. Debt is a loan that has to be repaid with interest, while equity capital involves giving ownership interest in exchange for investment.

Question 15

Orion Inc.was started as a small organization with five employees.After the first year's profits were made,the owners decided to invest the profits in expanding the business.This is an example of financing the business using _____.

Accepted Answer

Bootstrapping refers to financing a business's growth by reinvesting the profits back into the business instead of seeking external funding or loans. In this scenario, Orion Inc. is using its first year's profits to expand, which is a classic example of bootstrapping.

Question 16

Which of the following is true of financing small businesses?

Accepted Answer

There are several resources available for financing start-ups, including loans, grants, crowdfunding, venture capital, and angel investors. This means that entrepreneurs have options to choose from based on their unique financial needs and goals. Option B is incorrect as funding is important at all stages of a business's development, not just during the start-up phase. Option C is incorrect as financial goals will vary depending on the stage of a business's development. Option D is incorrect as commercial banks are not always the most popular source of financing for start-ups.

Question 17

Ownership of corporations is established by _____.

Accepted Answer

Ownership of corporations is established by stock certificates, which represent ownership in the company. Share agreements and partnership share agreements may be used in other forms of business ownership, but not in corporations. Member share certificates are typically used in limited liability companies (LLCs) and cooperatives, which are different from corporations.

Question 18

A business formed by an individual who is responsible for all debts and claims against the business is called a:

Accepted Answer

A sole proprietorship is a type of business structure in which an individual is solely responsible for all the debts and claims against the business. There is no legal distinction between the owner and the business, and the owner has complete control over its operations.

Question 19

The percentage amount that the payout of an investment differs from original cost is known as:

Accepted Answer

The percentage amount by which the payout of an investment differs from original cost is known as gain on investment. Dividend on capital refers to the portion of profits that a company chooses to pay to its shareholders, which may or may not be a percentage of the original cost. Risk on investment refers to the potential loss or uncertainty associated with an investment. Interest on the principle is the amount of money earned on a principle investment.

Question 20

Which of the following is true of limited partnerships?

Accepted Answer

Limited partnerships have both general and limited partners. The general partner has unlimited liability and is responsible for managing the business, while the limited partners only have limited liability and are not involved in managing the business. This means that only the general partner is fully liable for the partnership's debts, while the limited partners are only liable up to the amount of their investment in the business.

Quiz 15: Small Business Finance: Using Equity, Debt, and Gifts

Money contributed to businesses in return for part ownership of the business is called a(n) _____.