Question 1

Qualified small businesses that cannot obtain business loans through normal lending channels can get loans directly from the Department of Trade and Industry.

Accepted Answer

The Department of Trade and Industry does not directly provide loans; instead, it may facilitate access to loans through programs or partnerships with financial institutions.

Question 2

The Department of Trade and Industry guarantees loans for small businesses.

Accepted Answer

The Department of Trade and Industry in some countries might provide support and resources for small businesses, but it does not guarantee loans for them.

Question 3

Andrew is a venture capitalist who would like to find a good new business in which to invest.He's done this before so he has learned to limit his investing to businesses with potentially high returns in a _____ period.

Accepted Answer

The answer of Andrew is a venture capitalist who would...

Question 4

Asset-based lending is a type of financing secured by assets such as equipment and inventory.

Accepted Answer

The answer of Asset-based lending is a type of financing...

Question 5

For entrepreneurial ventures with the potential for becoming significant businesses, initial public offerings have been the fastest-growing source of financing over the past two decades.

Accepted Answer

Venture capital has been a faster-growing source of financing for entrepreneurial ventures with high growth potential, especially in the early stages before they reach the point of considering an initial public offering (IPO).

Question 6

Equity can be sold to underwriters, but they do not guarantee the sale of securities.

Accepted Answer

Underwriters typically guarantee the sale of securities by purchasing them from the issuer and then reselling them to the public, assuming the risk of selling the securities.

Question 7

If a company has a signed purchase order from a creditworthy customer and the gross profit margin on the order is anticipated to be 36 per cent, purchase-order financing is likely.

Accepted Answer

Purchase-order financing is often used when a company receives a large purchase order from a creditworthy customer, but does not have the working capital to fulfill the order. If the gross profit margin on the order is high (such as 36%), it makes the financing more attractive for lenders as there is more potential for the borrower to repay the loan. Therefore, in this scenario, purchase-order financing is likely.

Question 8

The amount of trade credit available to a new company is dependent on the supplier's confidence in the business and not the type of business.

Accepted Answer

The amount of trade credit available to a new company depends on both the supplier's confidence in the business and the type of business, as different industries have varying levels of risk and standard credit terms.

Question 9

Anna's new business looks like it can grow quickly and become profitable in its first year.Anna will likely find _____ possible sources of financing than those with less potential for growth and profits.

Accepted Answer

Businesses with high growth potential and profitability typically attract more interest from investors and lenders, leading to many more possible sources of financing.

Question 10

National and local governments are becoming less involved in financing new businesses.

Accepted Answer

Governments often play a crucial role in financing new businesses through grants, loans, and incentives to stimulate economic growth and innovation.

Question 11

A company that has over 100 employees with locations in several states is typically the type of company in which business angels make an investment.

Accepted Answer

Business angels typically invest in early stage companies or startups with high growth potential, rather than established companies with over 100 employees and multiple locations. They prefer to be involved in the formation and development of the company, rather than investing in an already established company.

Question 12

Crowdfunding works strictly with individual donations made over the Internet.

Accepted Answer

Crowdfunding can also involve contributions from businesses or organizations, not just individuals.

Question 13

Both wholesalers and equipment manufacturers/suppliers can be used as sources of funds.

Accepted Answer

The answer of Both wholesalers and equipment manufacturers/suppliers can be...

Question 14

Around 5 per cent of the business plans reviewed by venture capitalists are funded.

Accepted Answer

Less than 1% of business plans submitted to venture capitalists are actually funded. The vast majority are rejected for various reasons, including lack of market potential, poor business model, or the team's inability to execute.

Question 15

Companies that have business dealings with a new business are possible sources of funds for financing inventory and equipment.

Accepted Answer

Companies that have business dealings with a new business can provide trade credit, which allows the new business to purchase inventory or equipment and pay for it at a later date. This can serve as a source of funds for financing these assets.

Question 16

When a share sale is restricted to private placement, an entrepreneur can avoid many of the demanding requirements of the securities laws.

Accepted Answer

Private placement allows for exemption from certain securities laws requirements, making it a less demanding option for entrepreneurs to sell shares.

Question 17

Private placement is the selling of shares to select venture capitalists.

Accepted Answer

Private placement is the selling of shares to a limited number of accredited investors, not just venture capitalists.

Question 18

A source of early-stage capital financing for a company is financing from commercial banks.

Accepted Answer

Commercial banks typically provide later-stage financing options such as loans or lines of credit, rather than early-stage capital financing for startups. Early-stage financing is usually provided by angel investors, venture capitalists, or seed funds.

Question 19

The private sale of a business's shares is regulated by the Financial Services Board.

Accepted Answer

The private sale of a business's shares is not regulated by the Financial Services Board in most cases. Instead, it is typically governed by contract and company law, with the involvement of legal and financial professionals. However, in some circumstances, such as if the shares are being sold to the public or if the business is a publicly-traded company, regulations from the Financial Services Board may apply.

Question 20

Commercial investors are sometimes called business angels.

Accepted Answer

Commercial investors are not called business angels. Business angels are typically individuals who invest their own money in early-stage startups.

Quiz 12: A Firms Sources of Financing