Question 1

An entrepreneur should prepare a single set of "most likely" financial forecasts for one year into the future as part of the business plan.

Accepted Answer

An entrepreneur should prepare multiple sets of financial forecasts, including best-case, worst-case, and most likely scenarios for at least three years into the future as part of the business plan. This helps to analyze potential risks, opportunities, and the feasibility of the business idea.

Question 2

The "C" of the 5 C's of Credit that is synonymous with cash flow is capital.

Accepted Answer

The "C" that is synonymous with cash flow is actually capacity. Capital refers to a borrower's financial resources or assets that can be used as collateral or contribute to their ability to repay a loan.

Question 3

Entrepreneurs should artificially inflate the amount of a loan request and expect the loan officer to "talk them down."

Accepted Answer

It is not advisable for entrepreneurs to artificially inflate the amount of a loan request, as this can lead to distrust from the loan officer and potentially harm their chances of securing the loan. It is better for entrepreneurs to be honest and transparent about their funding needs and work with the loan officer to determine a realistic and feasible loan amount.

Question 4

Potential lenders and investors expect entrepreneurs to exaggerate the truth in their business plans, so telling the truth in the plan is really not important.

Accepted Answer

Potential lenders and investors rely on the accuracy and honesty in the entrepreneur's business plan to make informed decisions about whether to lend or invest. Exaggerating the truth can lead to legal and financial consequences and damage the entrepreneur's reputation.

Question 5

The most common reason banks give for rejecting small business loan applications is the entrepreneur's poor credit history.

Accepted Answer

The answer of The most common reason banks give for...

Question 6

Spelling and grammatical errors in a business plan don't really matter; potential lenders and investors look past them at the content of the plan.

Accepted Answer

Spelling and grammatical errors can give a negative impression to potential lenders and investors, showing a lack of attention to detail and professionalism. It is important to have a well-written and polished business plan to increase the chances of securing funding.

Question 7

To make a business plan more attractive, an entrepreneur should include a potential exit strategy as a way to "cash out" for investors.

Accepted Answer

Including a potential exit strategy can make the business plan more appealing to investors as it gives them a clear path towards receiving a return on their investment. It also shows that the entrepreneur has thought ahead and has a plan in place for the future success of the business.

Question 8

The entrepreneur's "character" (even though it is an intangible factor) and the quality of the presentation are important factors in evaluating a loan proposal.

Accepted Answer

The entrepreneur's character and quality of presentation are subjective factors that lenders often consider when evaluating a loan proposal, as they can provide insight into the borrower's ability to manage the business and repay the loan.

Question 9

Essential pieces of information for potential lenders and investors include the assumptions the entrepreneur uses to derive the financial forecasts and projections in the business plan.

Accepted Answer

The assumptions used for financial forecasting are critical information for potential lenders and investors as it allows them to assess the feasibility and potential risks of the business venture.

Question 10

The entrepreneur's request for funds in the business plan should be specific and detailed.

Accepted Answer

The entrepreneur's request for funds in the business plan should be specific and detailed to provide a clear understanding of the amount of funds needed, the purpose of each expenditure, and the potential return on investment.

Question 11

Most loans banks make to startup businesses are secured not by collateral but by the character of the entrepreneur.

Accepted Answer

Most loans banks make to startup businesses are secured by collateral, such as property, inventory, or equipment. The personal and business credit history and financial track record of the entrepreneur also play a role in the decision-making process for loan approval, but collateral provides a tangible guarantee for the lender.

Question 12

The majority of loans banks make to small business startups are unsecured loans.

Accepted Answer

Banks typically require collateral for loans, especially for small business startups. It is difficult for startups to qualify for unsecured loans as they do not have a track record or assets to provide as collateral.

Question 13

After presenting the business plan to a group of potential lenders and investors, an entrepreneur should sit back and wait to hear from those who might be interested in the venture.

Accepted Answer

An entrepreneur should actively follow up with potential lenders and investors after presenting the business plan, rather than simply waiting to hear from them. This demonstrates interest and commitment to the venture.

Question 14

When presenting a business plan to a group of potential lenders and investors, an entrepreneur should cover every detail in the plan, striving to answer every question his audience might have.

Accepted Answer

An entrepreneur should focus on key points and highlights of the business plan, allowing time for questions and discussion, rather than overwhelming the audience with every detail.

Question 15

The most common reasons banks give for rejecting small business loan applications are undercapitalization and too much debt.

Accepted Answer

Undercapitalization (or not having enough funds to start or sustain the business) and too much debt are common reasons for banks to reject small business loan applications as it increases the risk of defaulting on the loan.

Question 16

The higher a small business scores on the 5 C's of credit, the greater its chances will be of receiving a loan.

Accepted Answer

The 5 C's of credit (character, capacity, capital, collateral, and conditions) are commonly used by lenders to evaluate a borrower's creditworthiness. A small business that scores well on these factors is considered lower risk, making it more likely to be approved for a loan.

Question 17

The quality of the entrepreneur's business plan determines the first impression potential lenders and investors have of the company.

Accepted Answer

The quality of the business plan is crucial as it outlines the company's goals, strategies, financial projections, and market analysis. This information is used by lenders and investors to evaluate the potential success of the company and its ability to repay loans or generate a return on investment. A well-written and convincing business plan will make a positive first impression, while a poorly written plan may raise concerns about the company's viability.

Question 18

A lender's primary concern in granting a loan is reassurance that the applicant will repay it, whereas an investor's primary concern is earning a satisfactory rate of return.

Accepted Answer

This is generally true. Lenders are more concerned with the borrower's ability and willingness to repay the loan, while investors are primarily focused on generating returns on their investment. However, there may be some overlap depending on the specific circumstances and the type of loan or investment involved.

Question 19

The loan proposal portion of the business plan should include a realistic timetable for repayment or for investors to exit.

Accepted Answer

The loan proposal should include a clear plan for how and when the loan will be repaid, as well as any contingency plans in case of unforeseen circumstances that may affect the repayment schedule. If investors are involved, the plan should also include a timeline for when they can expect to exit and potentially receive their returns.

Question 20

Cash flow projections are not an essential part of a business plan as long as the entrepreneur provides accurate forecasts of the venture's profits.

Accepted Answer

Cash flow projections are crucial in determining the overall financial health and sustainability of a business. Profit forecasts alone do not give a complete picture of a company's financial situation, as they do not take into account the timing of expenses and revenues. Cash flow projections are also important for identifying potential funding needs and managing cash flow during difficult periods.

Quiz 4: Conducting a Feasibility Analysis and Crafting a Winning Business Plan