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Indicate whether the statement is true or false.
1. Because of loan restrictions, obtaining funding from commercial lenders is prohibitive for entrepreneurs.
a. True
b. False
2. Commercial loan officers have the expertise to project new ventures’ business successes, and thus are as willing to
make funds available to entrepreneurs on the same basis as other businesses.
a. True
b. False
3. Collateral plays an important role in determining the willingness to lend and the amount and terms of the loan, making
it the most important factor in the lending process.
a. True
b. False
4. The SBA approves the standard 7(a) loan and guarantees up to 85% of the loan value.
a. True
b. False
5. Pay-after-delivery is a common model for obtaining funds from customers to help finance startups.
a. True
b. False
6. The SBA’s role in its microloan credit program is to approve the loans and guarantee up to 85% of the loan value.
a. True
b. False
7. Unlike traditional commercial banks, venture banks typically provide debt to startups that have already received equity
financing from professional venture capital firms.
a. True
b. False
8. Congress created the Treasury Department’s Community Development Financial Institutions (CDFI) Fund in 1954.
a. True
b. False
9. Most business incubator organizations make equity investments in their client firms.
a. True
b. False
10. Warrants allow lenders to buy equity at a specified price.
a. True
b. False
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11. Compensation received by commercial loan officers makes them more likely to finance early-stage ventures.
a. True
b. False
12. The 7(a) loan traditionally has been the SBA’s primary loan program.
a. True
b. False
13. Despite the high risk and costs of using a facilitator or up-front fee solicitor to obtain financing, many startups
nevertheless seek them as a source of funds due to the length of time it takes to raise new funds.
a. True
b. False
14. Warrants are a debt instrument frequently used by commercial banks when financing entrepreneurial ventures.
a. True
b. False
15. Receivables lending is the use of receivables as collateral for an equity issue.
a. True
b. False
16. Because investors and commercial lenders both seek returns on the funds given to startup firms, entrepreneurs can
obtain financing as easily from either source.
a. True
b. False
17. With venture leasing, one component of the return to the lessor is the opportunity to take an equity interest in the
venture.
a. True
b. False
18. The Immigration and Nationality Act (INA) of 1990 provided an opportunity for foreign nationals to obtain a “green
card” through the EB–5 immigrant visas program.
a. True
b. False
19. A foreign national may seek Lawful Permanent Resident (LPR) status by investing $1 million in the United States that
will preserve or create at least 100 jobs for U.S. workers.
a. True
b. False
20. Factoring is the sale of payables to a third party at a discount from their face value.
a. True
b. False
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21. Among startups, it is widely understood that bank debt (outside of Small Business Administration loans) is not a very
realistic source of financing for ventures with less than two years of operating results.
a. True
b. False
22. Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $50,000 to
be used for general business needs.
a. True
b. False
23. For the CDC/504 loan, the SBA approves and guarantees the development company’s portion of the debt but does not
guarantee the debt of the participating commercial bank.
a. True
b. False
24. Commercial banks receive a portion of their returns from warrants in addition to the receipt of interest and the
repayment of the principal that was lent.
a. True
b. False
25. A business incubator is an organization that helps startup companies develop by providing management, operating,
and financial services.
a. True
b. False
26. Business crowdsourcing is the process of obtaining business ideas, development support, and operating services from
a large network of nonemployees.
a. True
b. False
27. By an act of Congress, the Small Business Administration (SBA) was created for the purpose of fostering the initiation
and growth of small businesses.
a. True
b. False
28. A seed accelerator is an organization that usually provides both an equity investment and a mentoring and educational
fixed-term, cohort program to help startup companies succeed.
a. True
b. False
29. The SBA’s venture capital credit program works through Community Development Financial Institutions (CDFIs).
a. True
b. False
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30. Rewards-based crowdfunding involves soliciting nonequity funds to finance specific business products and services or
to request donations for a specific purpose.
a. True
b. False
31. SBA 7(a) loans are made usually for 1 to 3 years in amounts up to $10,000,000, require collateral, and can be used for
most business purposes.
a. True
b. False
32. Microloans in the SBA credit program are made by not-for-profit or government-affiliated Community Development
Financial Institutions (CDFIs).
a. True
b. False
33. Factoring is the selling of receivables to a third party at a discount from their face value.
a. True
b. False
34. The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of
the loan principal.
a. True
b. False
35. Credit cards issued to startups have proven to be an alternative source of startup financing.
a. True
b. False
36. In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total
amount due on the receivables.
a. True
b. False
37. Indirect public offerings have recently become a serious challenge to traditional venture capital firms.
a. True
b. False
38. Two types of crowdfunding are rewards-based crowdfunding and debt crowdfunding.
a. True
b. False
39. The Small Business Administration was created by an act of Congress in 2003.
a. True
b. False
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Indicate the answer choice that best completes the statement or answers the question.
40. 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:
a. repayment of principal
b. implementation of loan restrictions
c. tax breaks on the interest received
d. the right to buy equity at a specific price
41. The use of receivables as collateral for a loan is known as:
a. capital leasing
b. warehouse financing
c. receivables lending
d. venture leasing
42. 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:
a. capacity
b. capital
c. collateral
d. character
43. A provision that allows lenders to acquire equity at a specific price is known as a(n):
a. factor
b. warrant
c. venture lease
d. equity carve-out
44. By an act of Congress, the Small Business Administration (SBA) was created in which of the following years?
a. 1953
b. 1968
c. 1973
d. 1985
45. 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:
a. capacity
b. capital
c. collateral
d. conditions
46. Which of the following is not a common model for obtaining funds from customers to help finance startups?
a. pay-in-advance
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b. subscription
c. matchmaking
d. pay-at-delivery
47. All of the following are common loan restrictions except:
a. limits on total debt
b. limits on total equity
c. restrictions on dividends or other payments to owners and/or investors
d. performance standards on financial ratios
48. Bank debt is not a realistic source of financing for startups due to all of the following reasons except:
a. payables either do not yet exist or the startup’s history is inadequate
b. a large portion of the assets are intangible and provide no collateral
c. the startup’s dependence on a small number of irreplaceable people is not a good match to demand deposits or other
bank liabilities
d. the startup’s receivables collection track record is incomplete
49. Personal credit cards have proven to be a source of financing for startup 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 cardholder’s ability to repay
b. teaser rates afford initial low cost borrowing
c. balance transfers occur 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
50. Commercial banks, credit unions, and/or financial services firms are lenders in which of the following SBA credit
programs?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
51. Small Business Investment Companies (SBICs) are lenders in which of the following SBA credit programs?
a. 7(a) loan
b. 504 loan
c. microloan
d. venture capital loan
52. Venture banks do not seek loan returns from:
a. interest received
b. principal repayments
c. warrants being exercised
d. direct public offerings
53. Which of the following is not a source of debt funding for a startup firm?
a. accounts payable
b. vendor financing
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c. factoring
d. leasing
54. In which of the following credit programs does the SBA approve a loan and guarantee up to 85% of loan value?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
55. Selling receivables to a third party at a discount from their face value is referred to as:
a. factoring
b. receivables lending
c. venture banking
d. venture financing
56. In which of the following credit programs is the SBA’s role in the loan one of providing a direct loan to a community
organization, which reloans the funds in small amounts?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. credit card loan
57. Which of the following is not a duty of the Small Business Administration?
a. provide capital and credit to entrepreneurial startups
b. guarantee loans issued under its credit programs to small businesses
c. provide equity financing for startups
d. help create new jobs in small businesses
58. 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:
a. capacity
b. character
c. collateral
d. conditions
59. What does SBA stand for in the context of new ventures?
a. “Standard Business Arrangement“
b. “Small Business Association”
c. “Small Business Administration”
d. “Standard Borrowing Arrangement“
60. Which of the following statements regarding factoring is not true?
a. receivables lending is the process of factoring
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
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61. Arranging for partial ownership as a component of the expected return to a lessor is known as:
a. venture leasing
b. capital leasing
c. investment leasing
d. direct public leasing
62. 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:
a. character
b. capital
c. collateral
d. conditions
63. Which of the following is not a current Small Business Administration (SBA) credit program?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. credit card loan
64. Not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs) are lenders in which
of the following SBA credit programs?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
65. Which of the following is not a Small Business Administration program?
a. loan guaranty programs
b. certified and preferred lender programs
c. energy and conservation loan programs
d. certified financial planner funding programs
66. 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?
a. debt crowdfunding
b. equity crowdfunding
c. rewards-based crowdfunding
d. asset incentive crowdfunding
67. 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:
a. capacity
b. capital
c. collateral
d. conditions
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68. In which of the following credit programs does the SBA borrow money to be lent to Small Business Investment
Companies (SBICs) and guarantee payment to investors?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
69. Which of the following is not a common characteristic of business incubators?
a. they make equity investments in their client firms
b. they help entrepreneurs obtain private and public loan funds
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
70. 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?
a. debt crowdfunding
b. equity crowdfunding
c. rewards-based crowdfunding
d. asset incentive crowdfunding
71. 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?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
72. Commercial banks, jointly with not-for-profit Certified Development Companies, are lenders in which of the
following SBA credit programs?
a. 7(a) loan
b. CDC/504 loan
c. microloan
d. venture capital loan
73. An organization that usually provides both an equity investment and a mentoring and educational program to help
startup firms succeed is called a(n):
a. business incubator
b. seed accelerator
c. angel assistor
d. crowdfunding arranger
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Answer Key
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