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CHAPTER 13
OTHER FINANCING ALTERNATIVES
True–False Questions
T. 1. 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.
business successes, and thus are as willing to make funds available to
entrepreneurs on the same basis as other businesses.
F. 4. 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.
to start-ups that have already received equity financing from professional
venture capital firms.
T. 7. 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
F. 10. Warrants are a debt instrument frequently used by commercial banks when
financing entrepreneurial ventures.
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addition to the receipt of interest and the repayment of the principal that was
lent.
T. 14. By an act of Congress, the Small Business Administration (SBA) was
created for the purpose of fostering the initiation and growth of small
businesses.
businesses with a maximum amount of $35,000 to be used for general
purposes.
F. 17. The SBA’s role in its microloan credit program is to approve the loans
and guarantee up to 85% of the loan value.
Development Financial Institutions (CDFIs).
T. 20. The 7(a) loan traditionally has been the SBA’s primary loan program
T. 23. For the 504 loan, the SBA approves and guarantees the development
company’s portion of the debt but does not guaranteed the debt of the
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T. 26. With venture leasing, one component of the return to the lessor is the
opportunity to take an equity interest in the venture.
their face value.
F. 29. Direct public offerings have recently become a serious challenge to
traditional venture capital firms.
U.S. workers.
T. 32. A business incubator is an organization that helps startup companies
development support, and operating services from a large network of
nonemployees.
F. 35. There are two types of crowdfunding: rewards-based crowdfunding and
debt crowdfunding.
Multiple-Choice Questions
institutions review the “Five C’s”. The ability of the entrepreneur to repay
borrowed funds is known as:
a. capacity
b. capital
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c. collateral
d. conditions
e. character
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:
a. capacity
b. capital
c. collateral
d. conditions
e. character
institutions review the “Five C’s”. The guarantees, or additional forms of
security (such as assets), the entrepreneur can provide the lender is known as:
a. capacity
b. capital
c. collateral
d. conditions
e. character
institutions review the “Five C’s”. The focus on the intended purpose of the
loan is known as:
a. capacity
b. capital
c. collateral
d. conditions
e. character
institutions review the “Five C’s”. The general impression the entrepreneur
makes on the potential lender or investor is known as:
a. capacity
b. capital
c. collateral
d. conditions
e. character
a. limits on total debt
b. limits on total equity
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c. restrictions on dividends or other payments to owners and/or
investors
d. restrictions on additional capital expenditures
e. performance standards on financial ratios
to start-ups 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?
a. interest payments
b. repayment of principal
c. implementation of loan restrictions
d. tax breaks on the interest
e. right to buy equity at a specific price
following reasons except?
a. a large portion of the assets are intangible and provide no collateral
b. payables either don’t yet exist or its history is inadequate
c. the start-up’s dependence on a small number of irreplaceable people
is not a good match to demand deposits or other bank liabilities
d. receivables collection track record is incomplete
e. in the event of a default, it is now plausible for the bank to install a
management team to help right the operations
known as a(n):
a. factor
b. warrant
c. venture lease
d. equity carve-out
firms for all of the following reasons except?
a. credit card debt is not based on the firm’s ability to repay, but rather
the individual card holder’s ability to repay
b. teaser rates afford initial low cost borrowing
c. balance transfer at below-prime rates
d. credit card debt can create problems if the firm doesn’t generate
cash flows to cover credit card payments once low introductory rates
expire
a. Standard Business Arrangement
b. Small Business Association
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c. Small Business Administration
created in which one of the following years?
a. 1953
b. 1968
c. 1973
d. 1985
e. 1993
a. provide capital and credit to entrepreneurial start-ups
b. guaranteeing general business loans
c. provide equity financing for start–ups
d. help create new jobs in small businesses
e. help small firms obtain Federal contracts
a. loan guaranty programs
b. certified and preferred lender programs
c. low documentation loan programs
d. energy and conservation loan programs
e. certified financial planner funding programs
a. accounts payable
b. vendor financing
c. factoring
d. trade notes
e. leasing
a. interest received
b. principal repayments
c. warrants being exercised
d. all of the above
e. none of the above
Administration (SBA) credit program?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
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guarantee a not–for-profit Certified Development Company’s portion of the
debt?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
and guarantees up to 85% of loan value?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
of providing a direct loan to a community organization, which reloans the
funds in small amounts?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
be lent Small Business Investment Companies (SBICs) and guarantees
payment to investors?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
lenders in which of the following SBA credit programs?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
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Companies, are lenders in which of the following SBA credit programs?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
Financial Institutions (CDFIs) are lenders in which of the following SBA
credit programs?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
the following SBA credit programs?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
e. credit card loan
a. factors prefer business over consumer accounts
b. factoring is done at a discount to the third party purchaser
c. factoring discounts are often a function of the riskiness of the
receivables
d. factoring speeds the inflow of cash to the seller of the receivables
e. receivable lending is the process of factoring
a. capital leasing
b. warehouse financing
c. receivables lending
d. a microloan
e. venture leasing
referred to as:
a. factoring
b. receivables lending
c. venture banking
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d. vendor financing
e. mortgage lending
a. factoring
b. capital lease
c. venture lease
d. mortgage lease
e. both a and d
a. venture leasing
b. capital leasing
c. investment leasing
d. none of the above
equity funds to finance specific business products and services or requesting
donations for a specific purpose?
a. debt
b. equity
c. rewards-based
d. asset incentive
from a large number of small investors in exchange for an equity position in
the venture requesting the funding?
a. debt
b. equity
c. rewards-based
d. asset incentive
customers to help finance startups?
a. pay-in-advance
b. subscription
c. matchmaking
d. pay-at-delivery
incubators?
a. they make equity investments in their client firms
b. they help entrepreneurs obtain private and public loan funds
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c. they are usually formed as nonprofit organizations that are operated
by either private firms or public entities
d. they require entrepreneurs to apply for admittance to their business
incubation programs