Question 1

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:

Accepted Answer

The focus on the intended purpose of the loan is known as "conditions." The other "Five C's" are "capacity" (the borrower's ability to repay the loan), "capital" (the borrower's existing financial resources), "collateral" (assets that can be used as security for the loan), and "character" (the borrower's credit history and reputation).

Question 2

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:

Accepted Answer

The general impression the entrepreneur makes on the potential lender or investor is known as "character," which is one of the "Five C's" that lending institutions review when assessing creditworthiness. The other four "C's" are capacity (the ability to repay the loan), collateral (assets that can be pledged as security), conditions (economic and market conditions that may affect the borrower's ability to repay), and capital (the borrower's financial position).

Question 3

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:

Accepted Answer

The guarantees or additional forms of security provided by the entrepreneur are known as collateral. The other four C's include character, capital, capacity, and conditions, which are all factors that lenders consider when assessing creditworthiness. However, collateral specifically refers to the assets that can be used to secure a loan in case the borrower is unable to repay it.

Question 4

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?

Accepted Answer

Rewards-based crowdfunding involves soliciting funds for a specific business project or product and providing the backer with a nonfinancial reward, such as the product itself or exclusive merchandise. This type of crowdfunding is often used by entrepreneurs to test the market demand for a product and to generate publicity.

Question 5

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

Accepted Answer

The Small Business Administration (SBA) was created on July 30, 1953, by the enactment of the Small Business Act of 1953.

Question 6

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

Accepted Answer

The Small Business Administration does not offer certified financial planner funding programs. The other three options listed are all legitimate programs offered by the SBA to assist small businesses.

Question 7

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

Accepted Answer

Seed accelerators, also known as startup accelerators, are programs that offer both investment and mentorship to help startups grow and succeed. They typically provide a small amount of seed capital in exchange for equity and offer mentoring, educational programs, and networking opportunities to accelerate the growth of early-stage companies.

Question 8

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:

Accepted Answer

Capacity refers to the borrower's ability to repay the loan. When assessing creditworthiness, lenders need to know if the borrower has enough cash flow and income to make the monthly loan payments on time. This is the most crucial factor in determining if a borrower is a good risk or not.

Question 9

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?

Accepted Answer

The SBA approves and guarantees a not-for-profit Certified Development Company's portion of the debt in the CDC/504 loan program. In this program, the CDC works with the SBA and a lender to provide financing to small businesses for the purchase of fixed assets, such as land or equipment.

Question 10

All of the following are common loan restrictions except :

Accepted Answer

Limits on total equity are not a common loan restriction. The other options listed, including limits on total debt, restrictions on dividends or other payments to owners and/or investors, and performance standards on financial ratios, are all common loan restrictions.

Question 11

Venture banks do not seek loan returns from:

Accepted Answer

Venture banks typically do not seek loan returns from direct public offerings as this type of financing involves selling equity in the company rather than taking out a loan. They may seek loan returns from interest received, principal repayments, and warrants being exercised, which are all forms of debt financing.

Question 12

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

Accepted Answer

The Small Business Administration does not provide equity financing for startups. Its primary focus is to provide capital and credit through its loan guarantee programs, as well as other resources and services to help small businesses start, grow, and create jobs.

Question 13

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

Accepted Answer

The other three options listed (B, C, and D) all accurately describe why bank debt may not be a realistic source of financing for startups. Intangible assets cannot be used as collateral, and a startup that depends heavily on a few individuals is not a good match for the kinds of bank liabilities that a more established company might have. Additionally, incomplete or nonexistent receivables collection can make it difficult for a startup to secure financing through a bank. However, payables not existing or an inadequate history are not necessarily reasons why bank debt would not be a realistic source of financing for a startup.

Question 14

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

Accepted Answer

SBA stands for Small Business Administration, a U.S. government agency that provides support to entrepreneurs and small businesses.

Question 15

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:

Accepted Answer

The money the entrepreneur has invested in the business is known as capital, which is one of the "Five C's" that lending institutions review when assessing creditworthiness. Capacity refers to the entrepreneur's ability to repay the loan, collateral is the assets offered as security for the loan, and conditions refer to the economic environment and industry trends that may impact the business's success.

Question 16

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?

Accepted Answer

Equity crowdfunding involves offering equity positions in a venture in exchange for funding from a large number of small investors. Debt crowdfunding involves soliciting funds as a loan that must be repaid with interest. Rewards-based crowdfunding involves offering rewards or incentives to backers who contribute to a venture, and asset incentive crowdfunding involves offering a share of revenue or profits from a specific asset or product in exchange for funding.

Question 17

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

Accepted Answer

A warrant is a provision that allows lenders to acquire equity at a specific price. Factors are financial institutions that purchase accounts receivable at a discount. Venture lease is a financing arrangement that enables a start-up to acquire equipment without paying upfront. Equity carve-out is a process of converting a subsidiary's equity into a separate publicly-traded entity.

Question 18

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

Accepted Answer

While credit cards can be used for small business financing, they are not an official SBA credit program.

Question 19

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 :

Accepted Answer

Venture banks usually do not receive tax breaks on the interest they receive from the startups.

Question 20

Personal credit cards have proven to be a source of financing for startup firms for all of the following reasons except :

Accepted Answer

Credit card debt can indeed create problems for a firm if it doesn't generate enough cash flow to cover payments after low introductory rates expire. This statement does not represent a reason why personal credit cards have proven to be a source of financing for startup firms; rather, it highlights a potential risk associated with using credit cards for financing.

Quiz 13: Other Financing Alternatives