Deck 13: Other Financing Alternatives

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Warrants allow lenders to buy equity at a specified price.

Answer 3

True

Question 4

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 5

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

Question 6

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.

Question 7

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.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Among start-ups, it is widely understood that bank debt outside of Small Business Administration loans), is not a very realistic source of financing for ventures with less than two years operating results.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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.

Question 18

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.

Question 19

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

Question 20

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.

Question 21

For the 504 loan, the SBA approves and guarantees the development company's portion of the debt but does not guaranteed the debt of the participating commercial bank.

Question 22

Business crowdsourcing is the process of obtaining business ideas, development support, and operating services from a large network of nonemployees.

Question 23

When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's". The general impression the entrepreneur makes on the potential lender or investor is known as:

A) capacity
B) capital
C) collateral
D) conditions
E) character

Question 24

Factoring is the selling of receivables to a third party at a discount from their face value.

Question 25

Factoring is the sale of payables to a third party at a discount to their face value.

Question 26

All of the following are common loan restrictions except?

A) limits on total debt
B) limits on total equity
C) restrictions on dividends or other payments to owners and/or investors
D) restrictions on additional capital expenditures
E) performance standards on financial ratios

Question 27

A seed accelerator is an organization that usually provides both an equity investment and a mentoring and educational fixed-term, cohort program to help startup companies succeed.

Question 28

SBA 7a) loans are made usually for 1 to 3 years in amounts up to $5,000,000, require collateral, and can be used for most business purposes.

Question 29

There are two types of crowdfunding: rewards-based crowdfunding and debt crowdfunding.

Question 30

The SBA approves the standard 7a) loan and guarantees up to 85% of the loan value.

Question 31

A foreign national may seek Lawful Permanent Resident LPR) status by investing $1 million in the U.S. that will preserve or create at least 100 jobs for U.S. workers.

Question 32

A business incubator is an organization that helps startup companies develop by providing management, operating, and financial services.

Question 33

When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's". The money the entrepreneur has invested in the business, which is an indication how much is at risk if the business should fail is known as:

A) capacity
B) capital
C) collateral
D) conditions
E) character

Question 34

When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's". The ability of the entrepreneur to repay borrowed funds is known as:

A) capacity
B) capital
C) collateral
D) conditions
E) character

Question 35

Direct public offerings have recently become a serious challenge to traditional venture capital firms.

Question 36

Receivables lending is the use of receivables as collateral for an equity issue.

Question 37

With venture leasing, one component of the return to the lessor is the opportunity to take an equity interest in the venture.

Question 38

In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.

Question 39

The Immigration and Nationality Act INA) of 1990 provided an opportunity for foreign nationals to obtain a "green card" through the EB-5 immigrant visas program.

Question 40

"Pay-after-delivery" is a common model for obtaining funds from customers to help finance startups.

Question 41

Personal credit cards have proven to be a source of financing for start-up firms for all of the following reasons except?

A) credit card debt is not based on the firm's ability to repay, but rather the individual card holder's ability to repay
B) teaser rates afford initial low cost borrowing
C) balance transfer at below-prime rates
D) credit card debt can create problems if the firm doesn't generate cash flows to cover credit card payments once low introductory rates expire

Question 42

Unlike traditional commercial banks, venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms. In return for providing additional debt financing, these venture banks receive in return all of the following except?

A) interest payments
B) repayment of principal
C) implementation of loan restrictions
D) tax breaks on the interest
E) right to buy equity at a specific price

Question 43

Not-for-profit or government-affiliated Community Development Financial Institutions CDFIs) are lenders in which of the following SBA credit programs?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 44

A provision that allows lenders to acquire equity at a specific price is known as an):

A) factor
B) warrant
C) venture lease
D) equity carve-out

Question 45

Which is not a duty of the Small Business Administration?

A) provide capital and credit to entrepreneurial start-ups
B) guaranteeing general business loans
C) provide equity financing for start-ups
D) help create new jobs in small businesses
E) help small firms obtain Federal contracts

Question 46

Concerning factoring, all of the following are true except:

A) factors prefer business over consumer accounts
B) factoring is done at a discount to the third party purchaser
C) factoring discounts are often a function of the riskiness of the receivables
D) factoring speeds the inflow of cash to the seller of the receivables
E) receivable lending is the process of factoring

Question 47

Commercial banks, jointly with not-for-profit Certified Development Companies, are lenders in which of the following SBA credit programs?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 48

By an act of Congress, the Small Business Administration SBA) was created in which one of the following years?

A) 1953
B) 1968
C) 1973
D) 1985
E) 1993

Question 49

Which one of the following is not a current Small Business Administration SBA) credit program?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 50

Bank debt is not a realistic source of financing for start-ups due to all of the following reasons except?

A) a large portion of the assets are intangible and provide no collateral
B) payables either don't yet exist or its history is inadequate
C) the start-up's dependence on a small number of irreplaceable people is not a good match to demand deposits or other bank liabilities
D) receivables collection track record is incomplete
E) in the event of a default, it is now plausible for the bank to install a management team to help right the operations

Question 51

Commercial banks, credit unions, and/or financial services firms are lenders in which of the following SBA credit programs?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 52

In which of the following credit programs does the SBA approve and guarantee a not-for-profit Certified Development Company's portion of the debt?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 53

Venture banks seek loan returns from:

A) interest received
B) principal repayments
C) warrants being exercised
D) all of the above
E) none of the above

Question 54

In which of the following credit programs does the SBA borrow money to be lent Small Business Investment Companies SBICs) and guarantees payment to investors?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 55

Small Business Investment Companies SBICs) are lenders in which of the following SBA credit programs?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 56

In which of the following credit programs is the SBA role in the loan one of providing a direct loan to a community organization, which reloans the funds in small amounts?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 57

Which of the following is not a source of debt funding for a start-up firm?

A) accounts payable
B) vendor financing
C) factoring
D) trade notes
E) leasing

Question 58

In which of the following credit programs does the SBA approve a loan and guarantees up to 85% of loan value?

A) 7a) loan
B) 504 loan
C) microloan
D) venture capital loan
E) credit card loan

Question 59

Which of the following is not a Small Business Administration program?

A) loan guaranty programs
B) certified and preferred lender programs
C) low documentation loan programs
D) energy and conservation loan programs
E) certified financial planner funding programs

Question 60

In the context of new ventures, what does SBA stand for?

A) Standard Business Arrangement
B) Small Business Association
C) Small Business Administration

Question 61

Which of the following is/are not a type of leasing arrangement?

A) factoring
B) capital lease
C) venture lease
D) mortgage lease
E) both a and d

Question 62

The use of receivables as collateral for a loan is known as:

A) capital leasing
B) warehouse financing
C) receivables lending
D) a microloan
E) venture leasing

Question 63

Which of the following is not a common characteristic of business incubators?

A) they make equity investments in their client firms
B) they help entrepreneurs obtain private and public loan funds
C) they are usually formed as nonprofit organizations that are operated by either private firms or public entities
D) they require entrepreneurs to apply for admittance to their business incubation programs

Question 64

Selling receivables to a third party at a discount from their face value is referred to as:

A) factoring
B) receivables lending
C) venture banking
D) vendor financing
E) mortgage lending