Deck 15: Financing Strategy: Debt, Equity, or Both

Question 1

Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet specific criteria. One of these is the United States ________.

A) Small Business Administration (SBA)
B) Department of Agriculture (USDA)
C) Both of the above
D) Neither of the above

Answer 1

C

Question 2

Corporations sell equity in the form of ________.

A) Stock
B) Ownership
C) Debt
D) Bonds
E) Notes

Answer 2

A

Question 3

Raising money for a business is an aspect of ________, which is the use and manipulation of money.

A) Financing
B) Surety sequencing
C) Equity analysis
D) Comparative advantage
E) Acquisition

Answer 3

A

Question 4

________ is the act of providing or raising funds for a purpose.

A) Financing
B) Capitalizing
C) Fundraising
D) Initializing
E) Equity raising

Question 5

Venture capitalists can make their money by ________.

A) Waiting until the company "goes public" and converting their shares into stock, which can then be traded on the stock market
B) Selling their percentage share of the business to another investor
C) Either of the above
D) Neither of the above

Question 6

What do you have to do before you can sell stock in your business?

A) Incorporate
B) Hold an initial public offering
C) Register
D) Get a partner
E) Ask permission

Question 7

Business failure is defined by Dun and Bradstreet as "business termination ________."

A) With losses to creditors
B) With no notice
C) Because of owner illness
D) Due to retirement
E) Exit strategy

Question 8

Land or buildings that are bought and sold represent a class of investment called ________.

A) Real estate
B) Mutual funds
C) Stock
D) Bonds
E) Money market accounts

Question 9

A ________ is a loan made against an insurance policy with cash value

A) Policy loan
B) Microloan
C) Venture capital fund
D) All of the above
E) None of the above

Question 10

________ are forms of gifts or grants to businesses.

A) Tax credits
B) Tax abatements
C) Unpaid labor by friends and family
D) All of the above
E) None of the above

Question 11

________ is when the borrower fails to meet the repayment agreement.

A) Default
B) Bankruptcy
C) Liquidation
D) Stock swap
E) Debt swap

Question 12

Relying primarily on debt financing is very dangerous for a company because ________.

A) Creditors can force a company into bankruptcy or take over company property
B) Creditors can sabotage the business by refusing to lend it money
C) Creditors can gain a majority share of the company and take it over
D) All of the above
E) None of the above

Question 13

Bonds are a form of ________.

A) Debt financing
B) Equity financing
C) Ownership financing
D) Partnership
E) None of the above

Question 14

The amount of risk or threat of loss that an entrepreneur is willing to sustain is ________.

A) Risk tolerance
B) Risk aversion
C) Risk acceptance
D) Risk reception
E) Risk recognition

Question 15

The equity investor's risk is ________ that of the debt lender.

A) Higher than
B) Much lower than
C) The same as
D) Lower than
E) None of the above

Question 16

If you are a small business owner looking for a loan, a bank will expect you to ________.

A) Personally guarantee that you will be responsible for the business loan
B) Incorporate in order to maximize cash flow
C) Find equity investors to spread the bank's risk
D) Incorporate in order to avoid taxation
E) All of the above

Question 17

Which of the following is not a type of community development loan fund?

A) Venture capital
B) Small business
C) Microenterprise
D) All of the above
E) None of the above

Question 18

If $5,000 is borrowed at 9 percent to be paid back over one year, the interest on the loan is ________.

A) $450
B) $590
C) $500
D) $490
E) None of the above

Question 19

Statistics indicate that more than half of all small businesses ________.

A) Survive eight or more years
B) Survive ten-plus years
C) Fail after three years
D) Never start up
E) Go bankrupt

Question 20

Financing with earnings is an option under what circumstances?

A) A company is profitable and has positive cash flow from operations.
B) A company is profitable and has negative cash flow from operations.
C) A company has no debt and is growing.
D) A company needs debt to survive.
E) None of the above

Question 21

Business grants are primarily for research and commercialization efforts and are difficult for start-up, low-technology companies to acquire.

Question 22

Financing is a one-size-fits-all proposition.

Question 23

A creditor is an organization or individual that you have borrowed from and must repay.

Question 24

The principal is the amount of the loan or outstanding balance on the loan amount, including interest.

Question 25

If an investment is not risky, the reward, the potential return, will probably be ________.

A) Low
B) Around 15%
C) High
D) Around 20%
E) Around 75%

Question 26

The greater the potential reward, ________.

A) The riskier the investment is likely to be
B) The more the investment is likely to cost
C) The less risky the investment is likely to be
D) The more it will cost
E) The more established the investment is likely to be

Question 27

Your danger tolerance, meaning the amount of risk (threat of loss) that you are willing to sustain, will also help to define possible financing options.

Question 28

________ is the term for the time between a payment transaction and when the cash is actually in the seller's account.

A) Float
B) Bloat
C) Buffer
D) Balance
E) None of the above

Question 29

You could borrow money from friends and family who would like to invest in your business or you could offer them ________.

A) Equity
B) Debt
C) Stock
D) Bonds
E) Notes

Question 30

Which of the following is not one of the "Five C's of Borrowing"?

A) Constitution
B) Character
C) Collateral
D) Capacity
E) Capital

Question 31

If you are trying to finance your business with debt, your lenders will want to know what you own, what you owe, and what your business finances are.

Question 32

No matter what way you approach raising money for your business, you will need a ________.

A) Written business plan
B) Family investment
C) Bank loan
D) Winning lottery ticket
E) Bit of luck

Question 33

Equity financing is riskier for the investor, so the investor frequently wants both to be able to influence how the company is run and to receive a higher rate of return than a lender.

Question 34

Legal reduction in taxes is called ________.

A) Tax abatement
B) Tax evasion
C) Tax avoidance
D) Tax cheating
E) Tax planning

Question 35

A personal guarantee states that you will be responsible for paying off the loan in the event that the business cannot do so.

Question 36

Community Development Banks (CDBs) provide capital to rebuild economically vibrant communities through targeted lending and investing.

Question 37

Methods of bootstrap financing include ________.

A) Getting suppliers to extend you credit terms
B) Using temporary help rather than permanent employees
C) Working from home or borrowing office space
D) All of above
E) None of the above

Question 38

An investor who invests money into your business in exchange for equity receives ________.

A) A share of ownership of the business
B) Liability for any debt the business incurs
C) A monthly dividend out of the business profits
D) Bonds
E) Headaches

Question 39

There is no need to have proper documentation with family and friends if they become investors in your business. Everybody can be trusted on their word.

Question 40

If you take out a loan for $2,000 at an annual interest rate of 10%, how much interest will you pay each year?

A) $200.00
B) $20.00
C) $100.00
D) $10.00
E) None of the above

Question 41

Venture capitalists specialize in financing new, high-potential entrepreneurial companies and second-stage companies.

Question 42

What would be some of the risks involved in loaning a friend money to help start a business?

Question 43

Describe the three categories of financial investments that can provide funds.

Question 44

If the business does not make a profit, the investor does not get paid.

Question 45

If you finance your business with debt, it is called equity financing.

Question 46

There are many sources of capital to start a business. What are they?

Question 47

One way to finance a business is to exchange a share of the business for money.

Question 48

What are the Five "C's" of borrowing?

Question 49

Why might a bank be more willing to loan money to a large, successful company than to a start-up business?

Question 50

The equity investor assumes less risk than does the debt lender.