Deck 6: Financing the Small Business

Question 1

A common financial problem in a small business is:

A) taxation of profits.
B) punitive conditions in government grants.
C) lack of knowledge of financing sources.
D) an excess of personal funds.

Answer 1

C

Question 2

The informal risk-capital market refers to:

A) business angels.
B) low-risk high-return business ventures.
C) handshake borrowing.
D) other businesses who will help a new entry into the market.

Answer 2

A

Question 3

A method of financing that allows the business to withdraw and deposit funds on an ongoing basis as long as the total amount withdrawn, at any point in time, does not exceed the approved amount is called:

A) traditional bank loan.
B) personal guarantee.
C) line of credit.
D) mortgage.

Answer 3

C

Question 4

"Cash is king" refers to the need to:

A) market effectively.
B) pay bills as they come due.
C) fund promotional events.
D) hire competent employees.

Question 5

Trade credit is a form of:

A) cost-cutting.
B) interest payment.
C) debt financing.
D) equity financing.

Question 6

The majority of new businesses in Canada rely on:

A) government grant programs.
B) small business funding from a chartered bank.
C) self-funding.
D) supplier credit.

Question 7

Investors are most likely to want to know:

A) the product price structure of key competitors.
B) the identity of key employees.
C) how much money is needed by the business.
D) the owners' vacation plans.

Question 8

Financing difficulties of small business are often:

A) a symptom of small business as a cause of unemployment.
B) a symptom of management problems.
C) because there are too many small businesses.
D) due to bias against entrepreneurs.

Question 9

When an entrepreneur solicits small investments and/or donations from the public to fund the start-up of their company, this is referred to as:

A) bootstrap financing.
B) using corporate investors.
C) using business angels.
D) crowd-funding.

Question 10

"Burn rate" refers to:

A) the frequency with which new businesses in the industry fail.
B) employee turnover.
C) how much money is being spent each month.
D) the rate at which inventory is being sold.

Question 11

The start-up phase financing period will generally be:

A) two months.
B) one to three months.
C) one to two years.
D) two to six months.

Question 12

A disadvantage of equity financing is:

A) the pressure to pay dividends.
B) dilution of ownership interest.
C) the appearance of failure.
D) interest expense.

Question 13

Small business owners sometimes use personal credit cards to:

A) pay employees.
B) repay bank borrowing.
C) control interest expense.
D) finance the start-up phase.

Question 14

Capital requirements = Start-up costs plus Operating requirements minus:

A) owner's knowledge, skills, and abilities.
B) owner's character, credit, and credentials.
C) owner's assets available for investment.
D) owner's focus on competing businesses.

Question 15

Development financing is often provided by:

A) provincial government aid programs.
B) social networking.
C) tax incentive programs.
D) venture capitalist.

Question 16

A personal net worth and capability statement:

A) is similar to a business balance sheet.
B) will usually justify borrowing.
C) is no one's business.
D) is more descriptive than numeric.

Question 17

The type of financing sought is likely to be dictated by:

A) the strength of competition.
B) the entrepreneur's commitment to the venture.
C) the type of opportunity a business is pursuing.
D) the nature of the target market.

Question 18

Choosing a particular lender may be most influenced by:

A) length of the term and the use of the funds.
B) the entrepreneur's experiences in a previous venture.
C) friendliness and understanding of the lender.
D) the need for privacy.

Question 19

Small businesses need financing:

A) to reduce the risk of losing their personal funds.
B) in order to support price competition.
C) to keep their administrative offices modern-looking.
D) to fund a start-up and as capital for ongoing operations.

Question 20

CYBF refers to:

A) Critical Youth Balanced Funding.
B) Cover Your Business Faults.
C) Canadian Youth Business Foundation.
D) Canadian Young Business Founders.

Question 21

"Collateral" refers to:

A) the benefits received form dealing with a particular lender.
B) other business being done with the lender.
C) security given for a loan.
D) alternative sources of funding.

Question 22

A business should provide a lender with the following:

A) up to date information.
B) sample products for the lenders own use.
C) personal information about employees.
D) gifts to show their appreciation.

Question 23

Demand loans are usually most appropriate for:

A) funding inventory.
B) when cash flow is a problem.
C) delivery equipment.
D) situations where lenders and borrowers are good friends.

Question 24

A lender will want to know the following in order to assess an applicant's management ability:

A) performance evaluations received by the applicant when they were employed.
B) the applicant's level of knowledge about the business.
C) the applicant's personal interests and hobbies.
D) how well-liked the applicant is by their employees.