Chapter 12: Other Financing Alternatives

CHAPTER 12
OTHER FINANCING ALTERNATIVES
TrueFalse Questions
T. 1. Despite the high risk and costs of using a facilitator or up-front fee solicitor
to obtain financing !an" start-ups never-the-less seek the! as a source of
funds due to the length of ti!e it takes to raise ne# funds.
F. 2. Collateral pla"s an i!portant role in deter!ining the #illingness to lend and
the a!ount and ter!s of the loan !aking it the !ost i!portant factor in the
lending process.
F. $. Co!!ercial loan officers have the e%pertise to pro&ect ne# venture's
business successes and thus are as #illing to !ake funds available to
entrepreneurs on the sa!e basis as other businesses.
F. (. )ecause investors and co!!ercial lenders both seek returns on the funds
given to start-up fir!s entrepreneurs can obtain financing as easil" fro! either
source.
T. *. )ecause of loan restrictions obtaining funding fro! co!!ercial lenders is
prohibitive for entrepreneurs.
T. +. ,nlike traditional co!!ercial banks venture banks t"picall" provide debt
to start-ups that have alread" received e-uit" financing fro! professional
venture capital fir!s.
T. .. A!ong start-ups it is #idel" understood that bank debt /outside of 0!all
)usiness Ad!inistration loans1 is not a ver" realistic source of financing for
ventures #ith less than t#o "ears operating results.
F. 2. Credit cards issued to start-ups have proven to be an alternative source of
start-up financing.
F. 3. Factoring is the sale of pa"ables to a third part" at a discount to their face
value.
T. 14. 5n a factoring arrange!ent the third part" !akes its !one" b" purchasing
the receivables at a discount fro! the total a!ount due on the receivables.
T. 11. 6ith venture leasing one co!ponent of the return to the lessor is the
opportunit" to take an e-uit" interest in the venture.
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Chapter 12: Other Financing Alternatives
F. 12. The returns to venture bank lenders are generated solel" fro! interest
pa"!ents !ade b" borro#ers plus the return of the loan principal.
F. 1$. Co!!ercial banks receive a portion of their returns fro! #arrants in
addition to the receipt of interest and the repa"!ent of the principal that #as
lent.
T. 1(. Factoring is the selling of receivables to a third part" at a discount fro!
their face value.
F. 1*. 7eceivables lending is the use of receivables as collateral for an e-uit"
issue.
T. 1+. )" an act of Congress the 0!all )usiness Ad!inistration /0)A1 #as
created for the purpose of fostering the initiation and gro#th of s!all
businesses.
F. 1.. The 0!all )usiness Ad!inistration #as created b" an Act of Congress in
13+2.
T. 12. 8icroloans in the 0)A credit progra! are intended for ver" s!all
businesses #ith a !a%i!u! a!ount of 9$*444 to be used for general
purposes.
F. 13. The 0)A's role in its !icroloan credit progra! is to approve the loans and
guarantee up to 2*: of the loan value.
T. 24. 8icroloans in the 0)A credit progra! are !ade b" not-for-profit or
govern!ent-affiliated Co!!unit" Develop!ent Financial 5nstitutions
/CDF5s1.
F. 21. The 0)A's venture capital credit progra! #orks through Co!!unit"
Develop!ent Financial 5nstitutions /CDF5s1.
T. 22. The ./a1 loan traditionall" has been the 0)A's pri!ar" loan progra!
F. 2$. 0)A ./a1 loans are !ade usuall" for 1 to $ "ears in a!ounts up to
9*444444 re-uire collateral and can be used for !ost business purposes.
T. 2(. The 0)A approves the standard ./a1 loan and guarantees up to 2*: of the
loan value.
T. 2*. For the *4( loan the 0)A approves and guarantees the develop!ent
co!pan"'s portion of the debt but does not guaranteed the debt of the
participating co!!ercial bank.
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Chapter 12: Other Financing Alternatives
Multile!C"oi#e Questions
a. 1. 6hen assessing the credit#orthiness of ne# entrepreneurs lending
institutions revie# the ;Five C's<. The abilit" of the entrepreneur to repa"
borro#ed funds is kno#n as=
a. capacit"
b. capital
c. collateral
d. conditions
e. character
b. 2. 6hen assessing the credit#orthiness of ne# entrepreneurs lending
institutions revie# the ;Five C's<. The !one" the entrepreneur has invested in
the business #hich is an indication ho# !uch is at risk if the business should
fail is kno#n as=
a. capacit"
b. capital
c. collateral
d. conditions
e. character
c. $. 6hen assessing the credit#orthiness of ne# entrepreneurs lending
institutions revie# the ;Five C's<. The guarantees or additional for!s of
securit" /such as assets1 the entrepreneur can provide the lender is kno#n as=
a. capacit"
b. capital
c. collateral
d. conditions
e. character
d. (. 6hen assessing the credit#orthiness of ne# entrepreneurs lending
institutions revie# the ;Five C's<. The focus on the intended purpose of the
loan is kno#n as=
a. capacit"
b. capital
c. collateral
d. conditions
e. character
e. *. 6hen assessing the credit#orthiness of ne# entrepreneurs lending
institutions revie# the ;Five C's<. The general i!pression the entrepreneur
!akes on the potential lender or investor is kno#n as=
a. capacit"
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Chapter 12: Other Financing Alternatives
b. capital
c. collateral
d. conditions
e. character
b. +. All of the follo#ing are co!!on loan restrictions e%cept=
a. li!its on total debt
b. li!its on total e-uit"
c. restrictions on dividends or other pa"!ents to o#ners and>or
investors
d. restrictions on additional capital e%penditures
e. perfor!ance standards on financial ratios
d. .. ,nlike traditional co!!ercial banks venture banks t"picall" provide debt
to start-ups that have alread" received e-uit" financing fro! professional
venture capital fir!s. 5n return for providing additional debt financing these
venture banks receive in return all of the follo#ing e%cept=
a. interest pa"!ents
b. repa"!ent of principal
c. i!ple!entation of loan restrictions
d. ta% breaks on the interest
e. right to bu" e-uit" at a specific price
b. 2. )ank debt is not a realistic source of financing for start-ups due to all of the
follo#ing reasons e%cept=
a. a large portion of the assets are intangible and provide no collateral
b. pa"ables either don't "et e%ist or its histor" is inade-uate
c. the start-up's dependence on a s!all nu!ber of irreplaceable
people is not a good !atch to de!and deposits or other bank liabilities
d. receivables collection track record is inco!plete
e. in the event of a default it is no# plausible for the bank to install a
!anage!ent tea! to help right the operations
d. 3. ?ersonal credit cards have proven to be a source of financing for start-up
fir!s for all of the follo#ing reasons e%cept=
a. it is not based on the fir!'s abilit" to repa" but rather the
individual's
b. teaser rates afford initial lo# cost borro#ing
c. balance transfer at belo#-pri!e rates
d. it can create proble!s if the fir! doesn't generate cash flo#s to
cover credit card pa"!ents once lo# introductor" rates e%pire
c. 14. 6hich is not a dut" of the 0!all )usiness Ad!inistration=
a. provide capital and credit to entrepreneurial start-ups
b. guaranteeing general business loans
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Chapter 12: Other Financing Alternatives
c. provide e-uit" financing for start-ups
d. help create ne# &obs in s!all businesses
e. help s!all fir!s obtain Federal contracts
e. 11. 6hich of the follo#ing is not a 0!all )usiness Ad!inistration progra!=
a. loan guarant" progra!s
b. certified and preferred lender progra!s
c. lo# docu!entation loan progra!s
d. energ" and conservation loan progra!s
e. certified financial planner funding progra!s
e. 12. Concerning factoring all of the follo#ing are true e%cept=
a. factors prefer business over consu!er accounts
b. factoring is done at a discount to the third part" purchaser
c. factoring discounts are often a function of the riskiness of the
receivables
d. factoring speeds the inflo# of cash to the seller of the receivables
e. receivable lending is the process of factoring
c. 1$. 6hich of the follo#ing is not a source of debt funding for a start-up fir!=
a. accounts pa"able
b. vendor financing
c. factoring
d. trade notes
e. leasing
d. 1(. @enture banks seek loan returns fro!:
a. interest received
b. principal repa"!ents
c. #arrants being e%ercised
d. all of the above
e. none of the above
a. 1*. 0elling receivables to a third part" at a discount fro! their face value is
referred to as:
a. factoring
b. receivables lending
c. venture banking
d. vendor financing
e. !ortgage lending
e. 1+. 6hich one of the follo#ing is not a current 0!all )usiness
Ad!inistration /0)A1 credit progra!=
a. ./a1 loan
b. *4( loan
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Chapter 12: Other Financing Alternatives
c. !icroloan
d. venture capital loan
e. credit card loan
b. 1.. 5n #hich of the follo#ing credit progra!s does the 0)A approve and
guarantee a not-for-profit Certified Develop!ent Co!pan"'s portion of the
debt=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
a. 12. 5n #hich of the follo#ing credit progra!s does the 0)A approve a loan
and guarantees up to 2*: of loan value=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
c. 13. 5n #hich of the follo#ing credit progra!s is the 0)A role in the loan one
of providing a direct loan to a co!!unit" organiAation #hich reloans the
funds in s!all a!ounts=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
d. 24. 5n #hich of the follo#ing credit progra!s does the 0)A borro# !one" to
be lent 0!all )usiness 5nvest!ent Co!panies /0)5Cs1 and guarantees
pa"!ent to investors=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
a. 21. Co!!ercial banks credit unions and>or financial services fir!s are
lenders in #hich of the follo#ing 0)A credit progra!s=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
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Chapter 12: Other Financing Alternatives
e. credit card loan
b. 22. Co!!ercial banks &ointl" #ith not-for-profit Certified Develop!ent
Co!panies are lenders in #hich of the follo#ing 0)A credit progra!s=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
c. 2$. Bot-for-profit or govern!ent-affiliated Co!!unit" Develop!ent
Financial 5nstitutions /CDF5s1 are lenders in #hich of the follo#ing 0)A
credit progra!s=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
d. 2(. 0!all )usiness 5nvest!ent Co!panies /0)5Cs1 are lenders in #hich of
the follo#ing 0)A credit progra!s=
a. ./a1 loan
b. *4( loan
c. !icroloan
d. venture capital loan
e. credit card loan
a. 2*. )" an act of Congress the 0!all )usiness Ad!inistration /0)A1 #as
created in #hich one of the follo#ing "ears=
a. 13*$
b. 13*2
c. 13+$
d. 13+2
e. 13.$
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