Question 1

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

Accepted Answer

Warrants are not a debt instrument, but rather a type of equity instrument that gives the holder the right to buy a company's stock at a certain price for a certain period of time. While they are sometimes used in financing deals, they are not typically issued by banks for this purpose.

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.

Accepted Answer

The Small Business Administration (SBA) was created by an act of Congress in 1953 to aid, counsel, assist, and protect the interests of small business concerns.

Question 3

Warrants allow lenders to buy equity at a specified price.

Accepted Answer

Warrants give the holder the right to buy a certain number of shares of stock at a set price, typically higher than the current market price. This allows lenders to potentially acquire equity in the company if the stock price rises above the warrant price.

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.

Accepted Answer

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.

Accepted Answer

Venture banks specialize in providing debt financing to start-ups that have already received equity funding from professional venture capital firms, whereas traditional commercial banks may require collateral or a track record of profitability before providing loans.

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.

Accepted Answer

Commercial loan officers assess the creditworthiness of businesses based on financial history, collateral, and business plans, among other factors. New ventures often present higher risks due to lack of history, making officers less willing to lend on the same terms as established 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.

Accepted Answer

While collateral is an important factor in the lending process, it is not the most important factor. Lenders also consider the borrower's credit history, income, and debt-to-income ratio among other factors to determine their willingness to lend, as well as the amount and terms of the loan.

Question 8

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

Accepted Answer

Microloans in the SBA credit program are indeed 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.

Accepted Answer

This statement is not necessarily true. While higher compensation may incentivize loan officers to take on more risky investments, including early-stage ventures, there are many other factors that influence their decision-making process, such as creditworthiness, industry trends, and overall market conditions.

Question 10

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

Accepted Answer

The 7(a) loan program is indeed 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.

Accepted Answer

The answer of Credit cards issued to start-ups have proven...

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.

Accepted Answer

Banks typically require a track record of financial performance, which start-ups with less than two years of operations often lack, making it difficult for them to secure bank loans.

Question 13

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

Accepted Answer

The SBA's venture capital credit program does not work through Community Development Financial Institutions (CDFIs). It works directly with venture capital firms to provide funding to small businesses.

Question 14

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

Accepted Answer

Venture bank lenders, like other investors, can also generate returns through equity participation, fees, and other financial arrangements with the companies they invest in, not solely from interest payments and return of the loan principal.

Question 15

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

Accepted Answer

Commercial lenders often have strict requirements for loan eligibility, such as a strong credit history, collateral, and a proven track record of financial stability. As a result, many entrepreneurs may have difficulty obtaining funding from these sources.

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.

Accepted Answer

The SBA does not directly approve loans in its microloan program; instead, it provides funds to intermediary lenders who then administer the loans to eligible small businesses.

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.

Accepted Answer

While both investors and commercial lenders seek returns on their investments, they often have different risk tolerance levels and expectations of returns. Investors may be willing to take on greater risk in exchange for potentially higher returns, while commercial lenders may require more security and a lower risk profile. Therefore, entrepreneurs may find it easier to obtain financing from one source over the other, depending on their specific business needs and risk profile.

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.

Accepted Answer

Despite the risks and costs, some start-ups seek facilitators or up-front fee solicitors because they can't wait for the time it takes to raise funds through other means.

Question 19

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

Accepted Answer

The answer of The Small Business Administration was created by...

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.

Accepted Answer

Commercial banks typically receive returns from interest and the repayment of the principal, but not warrants. Warrants may be used as a form of compensation or incentive for lenders, but it is not a standard component of bank returns.

Quiz 13: Other Financing Alternatives

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

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

Warrants allow lenders to buy equity at a specified price.

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.

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

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.

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.

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

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

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

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

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.

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

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

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

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

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.

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.

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

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.