Small firms frequently run into problems when they
A) offer equipment as collateral for a term loan.
B) underutilize the equipment purchased with the loan.
C) overestimate the cash inflows from the equipment purchased with the loan.
D) fail to match a term loan's payment terms with the expected cash inflows from the equipment purchased with the loan.

Question

Quizplus · Accepted Answer

Failing to match a term loan's payment terms with the expected cash inflows from equipment purchased with the loan can cause cash flow problems for small firms. If the loan payments are too high and the cash inflows from the equipment are not sufficient, the firm may struggle to make the payments and stay in business. This mismatch can be avoided by carefully planning and forecasting cash flows before taking on a term loan.

Small Firms Frequently Run into Problems When They