44. Harlan’s customers have been a little slow in paying their invoices and he is short on cash to pay his
quarterly taxes. Harlan should consider:
a.
sending the late payers to a collection agency.
b.
factoring.
c.
putting his late payers on credit hold until they pay up.
d.
taking out a personal loan to pay the taxes.
45. Ralph owns a lumber yard and has a $500,000 purchase order from a construction company. His cost
of goods sold for this order is $300,000 Because his company needs working capital, the most logical
loan for the lumberyard would be to use ________.
a.
an equipment-based loan.
b.
factoring.
c.
purchase order financing.
d.
asset-based financing.
46. The type of financing Evangeline received from a business angel is known as:
a.
formal venture capital.
b.
informal venture capital.
c.
a formal business loan.
d.
an informal investment.
47. Vicki is a business angel who is looking for a start-up company in which to invest. Which company
would she most likely invest in based on current research?
a.
A company who currently has 50 employees and has plans to grow
b.
A business out of her home state to diversify her risk
c.
A business in an industry in which she has had experience
d.
A company formed by a group of experts in the industry
48. Business angels, as opposed to venture capitalists, provide
a.
asset-based loans.
b.
factoring.
c.
informal venture capital.
d.
trade credit.
49. Will has decided to invest $10,000 into his neighbor’s new company. The money will be used in the
early stages of development. Will is considered a
a.
venture capitalist.
b.
business angel.
c.
business contributor.
d.
loan specialist.
50. Isaac is looking for a business angel. His best chance of finding one is through:
a.
contact with business associates, accountants and lawyers.
b.
his banker.
c.
advertisements in magazines.
d.
contact with friends and relatives.
51. In groups of business angels,
a.
all angels must agree to invest or the deal is off.
b.
a majority of angels favoring investment obligates all angels to the deal.
c.
individual angels make personal decisions about whether or not to invest.
d.
no angel can invest unless all angels invest.
52. Before accepting money from a business angel, the entrepreneur should:
a.
first make application for a bank loan.
b.
use all available personal assets to finance the new venture.
c.
request a loan from the angel instead of investment to prevent having to give up control.
d.
make sure the business angel is accredited.
53. Venture capital companies
a.
are often limited partnerships that raise capital from other investors.
b.
provide for the financing needs of large companies only.
c.
are corporations or partnerships that operate as liquidation groups.
d.
no longer operate in the U.S. market.
54. Chuck, Marie and Tommy are a group of friends who have formed a LLC to raise capital for an
investment in 20 franchises of Rigby’s, a new sports bar concept. Tommy will be the general
partner; Chuck and Marie will be limited partners. These three are:
a.
business angels.
b.
formal venture capitalists.
c.
creditors.
d.
informal venture capitalists.
55. Miracle Fund LLC is a venture capitalist. In exchange for providing venture capital, Miracle Fund:
a.
expects the entrepreneur to pay interest to the Fund.
b.
receives the right to own a percentage of the entrepreneur’s business.
c.
takes a percentage of the annual earnings.
d.
becomes a general partner of the entrepreneur.
56. Many venture capitalists:
a.
prefer common stock in exchange for their investment.
b.
manage the liquidation of failed ventures.
c.
intend to cash out after five to seven years.
d.
insist on voting rights during stockholder meetings.
57. The federal government primarily provides funds to small businesses through
a.
venture capital companies.
b.
the Small Business Administration.
c.
business angels.
d.
the Securities and Exchange Commission.
58. Guaranty loans are
a.
made by private lenders.
b.
guaranteed up to 50 percent by the SBA.
c.
made through foreign banks.
d.
limited to $100,000.
59. Sandy is using a governmental program to help finance her new business. Her company is not eligible
for a loan through a normal lending channel and is receiving $120,000 with the SBA guaranteeing 85
percent of the loan. She also had to submit a loan application to the lender. Ellie is participating in the
a.
7(a) Loan Guaranty Program.
b.
Certified Development Company 504 Loan Program.
c.
Small Business Innovative Research Program.
d.
7(M) Microloan Program.
60. Martina wants to expand her business. She will need to buy a larger facility and equip it with
additional machinery. She should look into the SBA loan program that provides long-term financing
for small businesses to acquire real estate or machinery and equipment called the:
a.
7(m) Microloan Program.
b.
7(a) Loan Guaranty Program.
c.
Certified Development Company 504 Loan Program.
d.
Small Business Investment Program.
61. Novelty Shirts is a manufacturing company needing to expand its production facilities. Which SBA
program would be best to acquire real estate valued at $150,000?
a.
7(a) Loan Guaranty
b.
Certified Development Company 504 Loan
c.
7(m) Microloan
d.
Small Business Innovative Research
62. Elena plans to open a non-profit child-care center in her depressed neighborhood. She may qualify
for an SBA loan program that provides loans of up to $50,000 known as the:
a.
7(a) Loan Guaranty Program.
b.
7(m) Microloan Program.
c.
Certified Development Company 504 Loan Program.
d.
Small Business Investment Program.
63. Small business investment companies (SBICs)
a.
are licensed and regulated by the Federal Trade Commission.
b.
may lend funds or supply equity funds.
c.
obtain part of their capital from local governments at attractive interest rates.
d.
provide only short-term financing.
64. Lyman’s business has grown to 400 employees with annual revenues of $15 million. He would like
to expand further but needs another $5 million. He should consider:
a.
a 7(a) guaranty loan.
b.
a CDC 504 loan.
c.
the SBIR program.
d.
an SBIC loan.
65. Barry needs financing to start his inner-city venture. His goal is to provide part-time employment for
at-risk youths to keep them off the streets and engaged in learning marketable skills. Barry may find
some assistance from:
a.
a community-based financial institution.
b.
the Small Business Innovative Research Program.
c.
a small business investment company.
d.
a venture capital firm.
66. Connie owns a small but growing company that produces gorilla glass for smartphones. One possible
source of funding might be:
a.
Dell Computers, a well-known PC manufacturer.
b.
Intel, who produces computer chips.
c.
Microsoft, a company that markets software applications.
d.
Samsung, who sells smartphones.
67. Private placement
a.
is the sale of capital stock to selected individuals.
b.
is the sale of capital stock to investment bankers.
c.
requires compliance with all securities laws.
d.
maintains the ownership control of the original owners.
68. Nancy has decided to raise working capital for her upscale boutique business which currently has four
locations and is considering franchising the concept in the next few years. Because of the current
company organization and anticipated future plans, the most likely form of financing would be
________.
a.
large corporations
b.
private placement
c.
public sale
d.
underwriting
69. A drawback to “going public” is
a.
large profit potential resulting in increased taxation.
b.
numerous SEC requirements.
c.
national recognition causing increased exposure.
d.
additional working capital.
70. Wounded Warriors runs TV ads requesting viewers support their program by sending money in
exchange for a blanket. This type of crowdfunding uses the ___________ approach.
a.
donations
b.
rewards
c.
pre-purchases
d.
equity investing
71. If Janelle were to use crowdfunding as a means of attracting equity investors, she would have to:
a.
make sure she raised at least $1 million in equity.
b.
match any amounts raised from the crowdfunding.
c.
make sure each investor was accredited.
d.
file application with the SEC for an IPO.
ESSAY
1. What are the four basic factors that determine how a firm is financed?
2. What should an entrepreneur do before approaching an investor?
3. What are the tradeoffs between profitability, risk, and control that should be considered when choosing
between debt and equity?
4. Luke has a new company and is considering equity financing. Currently, Luke is the only owner and
source of equity for the business and makes all executive decisions for daily operations. What effect
could the addition of other investors have?
5. Frankie is looking for sources of financing for his new tour company. At this time, he would like to
keep his financing close to home but eventually apply for bank financing. What are Frankie’s financial
support options?
6. Discuss suggestions for an entrepreneur who is considering asking family or friends for financing.
7. List the “5 C’s of Credit” and explain their impact on borrowing ability.
8. What key terms should an entrepreneur understand so as to be prepared for loan negotiation?
9. Describe four different loan covenants that a bank may impose on a loan
10. Discuss reasons a business would lease as opposed to purchasing equipment.
11. Violet’s Catering is growing rapidly. A new customer has requested the company cater a retirement
luncheon for 500 persons resulting in Violet’s Catering needing a large order from the company’s
primary food vendor. Although the company is experiencing growth, cash flow is a concern. What
would be the best financing option?
12. Discuss business traits that business angels look for in prospective investments. What are typical
motivations?
13. Allie is starting a purse business and has been approached by Renee, a business angel, about
investing in the company. Discuss items Allie should consider before going into business with Renee.
14. Marla runs a not-for-profit daycare center in her home located in a rural area. She is in need of $10,000
to purchase inventory, supplies and equipment. What Small Business Administration program would
be the best fit for Marla’s situation and why?
15. Gina owns a clothing resale store in a low-income neighborhood. Since opening, the store has hired
five employees and is making a small profit. The store is the only business in her area and often
sponsors fundraisers at the location. Since the store is in need of expansion capital, what type of
funding should Gina to and why?
16. Discuss two methods of selling stock.
17. Awesome Awnings is a privately owned company which is growing rapidly and has become known for
its technology innovation. The owner is looking to begin selling stock in order to gain increased
working capital. Would private placement or public sale work better for Awesome Awnings, and
why?
MATCHING
Match the definition with its term.
a.
7(a) Loan Guaranty Program
b.
7(m) Microloan Program
c.
Certified Development Company (CDC) Loan Program
d.
Community-based financial institution
e.
Formal venture capitalists
f.
Informal venture capital
g.
Loan covenants
h.
Small Business Innovative Research (SBIR) Program
i.
Small business investment companies (SBICs)
1. A lender that uses funds from federal, state, and private sources to provide financing to small
businesses in low-income communities
2. A loan program that helps small companies obtain financing through a guaranty provided by the SBA
3. An SBA program that helps to finance companies that plan to transform laboratory research into
marketable products
4. Individuals who form limited partnerships for the purpose of raising venture capital from large
institutional investors
5. Privately owned banks, regulated by the SBA, that provide long-term loans and/or equity capital to
small businesses
6. An SBA loan program that provides long-term financing for small businesses to acquire real estate or
machinery and equipment
7. Funds provided by wealthy private individuals to high-risk ventures
8. An SBA program that provides short-term loans of up to $50,000 to small businesses and not-for-
profit child-care centers
Match the term with its definition.
a.
Asset-based loan
b.
Basis point
c.
Chattel mortgage
d.
Equipment loan
e.
LIBOR (London InterBank Offered Rate)
f.
Line of credit
g.
Prime rate
h.
Purchase-order financing
i.
Term loan
9. An informal agreement between a borrower and a bank as to the maximum amount of funds the bank
will provide an any one time
10. Money loaned for a 5-to 10-year term, corresponding to the length of time the investment will bring in
profits
11. An installment loan from a seller of machinery used by a business
12. 1/100th of 1 percent when quoting an interest rate
13. Obtaining cash from a lender who, for a fee, advances the amount of the borrower’s cost of goods sold
for a specific customer order
14. The interest rate charged by commercial banks on loans to their most creditworthy customers
15. A line of credit secured by working capital assets
16. The interest rate charged by London banks on loans to other London banks
Match the term with its definition.
a.
Balloon payment
f.
Initial public offering
b.
Business angels
g.
Loan covenants
c.
Chattel mortgage
h.
Private placement
d.
Crowdfunding
i.
Real estate mortgage
e.
Factoring
j.
Venture capitalist
17. Obtaining cash by selling accounts receivable to another firm
18. Private individuals who invest in others’ entrepreneurial ventures
19. Bank-imposed restrictions on a borrower that enhance the chance of timely repayment
20. A long-term loan with real property held as collateral
21. A very large payment required about halfway through the term over which payments were calculated,
repaying the loan balance in full
22. The issuance of stock to be traded in public financial markets
23. The sale of a firm’s capital stock to select individuals
24. A loan for which items of inventory or other movable property serve as collateral
25. The process of raising very small investments from a large number of investors via the Internet