41) When a bank makes enough good SBA-guaranteed loans to become a ________ lender, the
SBA promises a faster turnaround time for the loan decision—typically 3 to 10 business days.
A) preferred
B) qualified
C) certified
D) LDC
Topic: Small Business Administration (SBA)
AACSB: Reflective Thinking
42) When a bank proves the quality of its loan decisions to the SBA and becomes a ________
lender, the bank makes the final lending decision itself, subject to SBA review for the guarantee.
A) preferred
B) qualified
C) certified
D) LDC
Topic: Small Business Administration (SBA)
AACSB: Reflective Thinking
43) The SBA’s ________ program offers short-term capital to growing companies seeking to
finance seasonal buildups in inventory or accounts receivable.
A) The Direct Loan
B) CDC
C) Immediate Participation Loan
D) CAPLine
Topic: The CAPLine Program
AACSB: Analytic Skills
44) The majority of loans provided by the SBA are:
A) direct.
B) preferred.
C) guaranteed.
D) immediate participation.
Topic: Small Business Administration
AACSB: Analytic Skills
11
45) A(n) ________ is a nonprofit organization licensed by the SBA and designed to promote
economic growth in local communities.
A) FDC
B) CDC
C) GDC
D) RDC
Topic: Small Business Administration (SBA)
AACSB: Analytic Skills
46) The average interest rate on SBA-guaranteed loans is:
A) prime minus 2 percent.
B) 2 percent.
C) prime plus 2 percent.
D) 7 percent.
Topic: SBA Loan Programs
AACSB: Analytic Skills
47) ________ is designed to provide working capital to small exporters by providing loan
guarantees of 90 percent of the loan amount up to $1.5 million.
A) A CAPLine program
B) A Section 504 loan
C) An LDC loan
D) An export working capital program
Topic: Loans Involving International Trade
AACSB: Analytic Skills
48) The loan ceiling for the International Trade Loan Program is
A) $500,000.
B) $2 million.
C) $1 million.
D) $100,000.
Topic: Loans Involving International Trade
AACSB: Analytic Skills
12
49) ________ were created by the SBA in 1992 to provide loans under $50,000 that are normally
shunned by banks.
A) Microloans
B) Preferred loans
C) Seasonal line of credits
D) 8(a) program loans
Topic: Microloan Programs
AACSB: Analytic Skills
50) The maximum amount of a disaster assistance loan is ________ dollars.
A) 100,000
B) 500,000
C) 1 million
D) 2 million
Topic: Disaster Loans
AACSB: Analytic Skills
51) The capital access programs (CAPs) were first introduced in:
A) Iowa.
B) Michigan
C) Wisconsin.
D) New York.
Topic: State and Local Loan Development Programs
AACSB: Multicultural and Diversity
52) A small business that uses factoring:
A) pledges its accounts receivable as collateral to obtain a loan from a financial institution.
B) relies on a third-party consultant to apply for SBA-guaranteed loans.
C) sells its accounts receivable to a third party to get the capital it needs.
D) borrows money from lenders by offering them the option to convert the loan into stock in the
company.
Topic: Factoring Accounts Receivable
AACSB: Analytic Skills
13
53) Factoring:
A) is a more expensive method of financing than borrowing from a bank.
B) places the risk of uncollected accounts receivable on the small business owner.
C) is best used as a long-term source of capital.
D) is a type of trade credit.
Topic: Factoring Accounts Receivable
AACSB: Analytic Skills
54) Some of the reasons which small business owners should consider borrowing money are:
A) gaining market share.
B) refinancing existing debt.
C) taking advantage of cash discounts.
D) All of the above
Topic: Introduction
AACSB: Analytic Skills
55) Which of the following factors do banks focus on when lending money to a company?
A) Personal guarantee
B) Positive cash flow
C) Successful track record
D) All of the above
Topic: Introduction
AACSB: Analytic Skills
56) Typical short term loans are for:
A) purchase of more inventory.
B) purchase of computers.
C) positive cash to pay other debts.
D) All of the above
Topic: Short-Term Loans
AACSB: Analytic Skills
14
57) A line of credit means:
A) the company has access to unlimited funds.
B) a line of credit is the same as long-term loan.
C) a line of credit remains active forever.
D) None of the above
Topic: Lines of Credit
AACSB: Analytic Skills
58) Which of the following retailers may use floor planning financing?
A) Car dealer
B) Shoe store
C) Carpet dealer and cleaning service
D) All of the above
Topic: Floor Planning
AACSB: Analytic Skills
59) An amortization schedule is:
A) a breakdown of the loan payment which includes the interest rate and number of years for the
loan to be paid.
B) a breakdown of all fixed assets with their depreciation schedule.
C) a schedule the company has to provide the bank as part of their financial statements.
D) All of the above
Topic: Installment Loans
AACSB: Analytic Skills
60) Installment loans have to be repaid in:
A) 5 to 10 years.
B) 10 to 30 years.
C) 1 to 3 years.
D) None of the above
Topic: Installment Loans
AACSB: Analytic Skills
15
61) In installment loans, the loan’s ________ schedule typically coincides with the length of the
equipment’s usable life.
A) interest
B) tax
C) evaluation
D) amortization
Topic: Installment Loans
AACSB: Analytic Skills
62) Nonbank sources of debt financing could be based on:
A) asset-based lenders.
B) inventory financing.
C) Both A and B
D) None of the above
Topic: Nonbank Sources of Debt Financing
AACSB: Analytic Skills
63) Jones Manufacturing has been in business for 30 years. About 3 years ago, the company
spent about $2.5 million in upgrading/purchasing new equipment. Currently, due to bad weather,
the company is suffering cash flow problems and is not able to pay its expenses or inventory
purchases. One option for financing would be:
A) inventory financing.
B) asset-based financing.
C) sell the business.
D) All of the above
Topic: Asset-Based Lenders
AACSB: Reflective Thinking
64) Asset-based lenders require:
A) government approval.
B) state approval.
C) credit.
D) all of the above.
Topic: Asset-Based Lenders
AACSB: Analytic Skills
16
65) Convertible bonds:
A) can’t be converted to equity.
B) typically pay a lower interest rate.
C) typically pay a higher interest rate.
D) None of the above
Topic: Bonds
AACSB: Analytic Skills
66) Generally speaking, all growing companies need to borrow money at some point.
Topic: Introduction
AACSB: Analytic Skills
67) A small business owner should avoid borrowing money when he/she sees a downturn in
business or to refinance existing debt.
Topic: Short-Term Loans
AACSB: Analytic Skills
68) 47% of small business owners rely on banks as their source of start-up capital.
Topic: Commercial Banks
AACSB: Analytic Skills
69) Commercial banks are lenders of last resort for small businesses.
Topic: Commercial Banks
AACSB: Analytic Skills
70) Banks focus on a small business’s ability to generate a positive cash flow when lending
money.
Topic: Commercial Banks
AACSB: Analytic Skills
71) Commercial banks are primarily lenders of short-term capital to small businesses.
Topic: Short-Term Loans
AACSB: Analytic Skills
17
72) The common short-term loan is for one year, often repaid sooner, and repaid in one lump
sum.
Topic: Short-Term Loans
AACSB: Analytic Skills
73) A line of credit is usually secured by collateral.
Topic: Lines of Credit
AACSB: Analytic Skills
74) A recent survey of small companies with lines of credit found that only 25% actually use
them.
Topic: Lines of Credit
AACSB: Analytic Skills
75) A boat retailer would most likely use a line of credit to finance the purchase of his inventory.
Topic: Lines of Credit
AACSB: Reflective Thinking
76) A business owner does not pay interest on a floor-planned item in inventory until it is sold.
Topic: Floor Planning
AACSB: Analytic Skills
77) Unsecured term loans typically involve very specific terms which may limit the owner’s
freedom to make financial decisions.
Topic: Term Loans
AACSB: Analytic Skills
78) In an installment loan for equipment, the loan’s amortization schedule would coincide with
the equipment’s useful life.
Topic: Installment Loans
AACSB: Analytic Skills
18
79) Installment loans are made to big firms for purchasing other businesses.
Topic: Installment Loans
AACSB: Analytic Skills
80) Term loans impose restrictions called covenants.
Topic: Term Loans
AACSB: Analytic Skills
81) Even companies whose financial statements are too weak to produce other types of loans can
get asset-based loans.
Topic: Asset-Based Lenders
AACSB: Analytic Skills
82) Typically, a commercial bank will lend a small business owner 100% of the value of
accounts receivable pledged as collateral.
Topic: Asset-Based Lenders
AACSB: Analytic Skills
83) Inventory-only deals are the easiest form of asset-based financing to obtain because banks
like to have “tangible” assets backing a loan.
Topic: Inventory Financing
AACSB: Analytic Skills
84) Asset-based financing is an efficient means of borrowing because the business only pays for
the capital it actually needs and uses.
Topic: Asset-Based Lenders
AACSB: Analytic Skills
85) Trade credit, while more difficult to obtain than bank financing, is a somewhat important
source of financing to most established companies.
Topic: Trade Credit
AACSB: Analytic Skills
19
86) Start-up companies often use trade credit from suppliers to buy equipment and fixtures for
their business.
Topic: Economic Development Administration (EDA)
AACSB: Analytic Skills
87) Commercial finance companies are willing to take more risks in making loans, but they also
charge a higher interest rate.
Topic: Commercial Finance Companies
AACSB: Analytic Skills
88) The majority of the loans a commercial finance company makes are unsecured by collateral.
Topic: Commercial Finance Companies
AACSB: Analytic Skills
89) Commercial finance companies offer many of the same types of loans as commercial banks,
but they are willing to tolerate more risk in their loan portfolios.
Topic: Commercial Finance Companies
AACSB: Analytic Skills
90) When denied bank loans, small business owners often look to commercial finance companies
for the same types of loan.
Topic: Commercial Finance Companies
AACSB: Analytic Skills
91) Loans from stockbrokers carry higher interest rates since the collateral—stocks and bonds in
the borrower’s portfolio—involve a high level of risk.
Topic: Stock Brokerage Houses
AACSB: Analytic Skills
92) Loans from a stockbrokerage on the small business owner’s portfolio can be “called” to be
paid within a matter of days or even hours.
Topic: Stock Brokerage Houses
AACSB: Analytic Skills
20