Deck 13: Other Financing Alternatives

Question 1

Most business incubator organizations make equity investments in their client firms.

Answer 1

False

Question 2

Commercial loan officers have the expertise to project new ventures' business successes, and thus are as willing to make funds available to entrepreneurs on the same basis as other businesses.

Answer 2

False

Question 3

Two types of crowdfunding are rewards-based crowdfunding and debt crowdfunding.

Answer 3

False

Question 4

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 5

Despite the high risk and costs of using a facilitator or up-front fee solicitor to obtain financing, many startups nevertheless seek them as a source of funds due to the length of time it takes to raise new funds.

Question 6

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

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.

Question 8

Credit cards issued to startups have proven to be an alternative source of startup financing.

Question 9

Rewards-based crowdfunding involves soliciting nonequity funds to finance specific business products and services or to request donations for a specific purpose.

Question 10

Because investors and commercial lenders both seek returns on the funds given to startup firms, entrepreneurs can obtain financing as easily from either source.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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 16

Warrants allow lenders to buy equity at a specified price.

Question 17

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 18

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

Question 19

Among startups, 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 of operating results.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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

Question 25

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

Question 26

Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $50,000 to be used for general business needs.

Question 27

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 28

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

Question 29

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

Question 30

SBA 7(a)loans are made usually for 1 to 3 years in amounts up to $10,000,000, require collateral, and can be used for most business purposes.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

Congress created the Treasury Department's Community Development Financial Institutions (CDFI)Fund in 1954.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's." The focus on the intended purpose of the loan is known as:

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

Question 42

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)character
C)collateral
D)conditions

Question 43

When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's." The guarantees, or additional forms of security (such as assets), the entrepreneur can provide the lender are known as:

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

Question 44

Which of the following types of crowdfunding involves soliciting nonequity funds to finance specific business products and services or requesting donations for a specific purpose?

A)debt crowdfunding
B)equity crowdfunding
C)rewards-based crowdfunding
D)asset incentive crowdfunding

Question 45

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

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

Question 46

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

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

Question 47

An organization that usually provides both an equity investment and a mentoring and educational program to help startup firms succeed is called a(n):

A)business incubator
B)seed accelerator
C)angel assistor
D)crowdfunding arranger

Question 48

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)character

Question 49

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)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 50

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)performance standards on financial ratios

Question 51

Venture banks do not seek loan returns from:

A)interest received
B)principal repayments
C)warrants being exercised
D)direct public offerings

Question 52

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

A)provide capital and credit to entrepreneurial startups
B)guarantee loans issued under its credit programs to small businesses
C)provide equity financing for startups
D)help create new jobs in small businesses

Question 53

Bank debt is not a realistic source of financing for startups due to all of the following reasons except :

A)payables either do not yet exist or the startup's history is inadequate
B)a large portion of the assets are intangible and provide no collateral
C)the startup's dependence on a small number of irreplaceable people is not a good match to demand deposits or other bank liabilities
D)the startup's receivables collection track record is incomplete

Question 54

What does SBA stand for in the context of new ventures?

A)"Standard Business Arrangement"
B)"Small Business Association"
C)"Small Business Administration"
D)"Standard Borrowing Arrangement"

Question 55

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

Question 56

Which of the following types of crowdfunding involves soliciting funds from a large number of small investors in exchange for an equity position in the venture requesting the funding?

A)debt crowdfunding
B)equity crowdfunding
C)rewards-based crowdfunding
D)asset incentive crowdfunding

Question 57

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

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

Question 58

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)credit card loan

Question 59

Unlike traditional commercial banks, venture banks typically provide debt to startups 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)repayment of principal
B)implementation of loan restrictions
C)tax breaks on the interest received
D)the right to buy equity at a specific price

Question 60

Personal credit cards have proven to be a source of financing for startup 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 cardholder's ability to repay
B)teaser rates afford initial low cost borrowing
C)balance transfers occur 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 61

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 62

Arranging for partial ownership as a component of the expected return to a lessor is known as:

A)venture leasing
B)capital leasing
C)investment leasing
D)direct public leasing

Question 63

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)venture financing

Question 64

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 65

Which of the following is not a common model for obtaining funds from customers to help finance startups?

A)pay-in-advance
B)subscription
C)matchmaking
D)pay-at-delivery

Question 66

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

A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan

Question 67

Which of the following is not a source of debt funding for a startup firm?

A)accounts payable
B)vendor financing
C)factoring
D)leasing

Question 68

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 69

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 70

Which of the following statements regarding factoring is not true?

A)receivables lending is the process of factoring
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

Question 71

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)credit card loan

Question 72

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

A)7(a)loan
B)CDC/504 loan
C)microloan
D)venture capital loan

Question 73

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

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