Entrepreneurship

Using debt as a financing instrument

Leveraging the firm

long-term financing

funds needed for more than a year (usually 2 to 10 years)

An accurate statement about real estate loans is that it is

usually obtained to finance a company's land, plant, or another building

Straight commercial loans

30-90 days

Identify a true statement about a royalty partnership in a research and development limited partnership

A royalty dependent on the sale of the products developed from the technology is paid by the sponsoring company to the limited partnership.

Phase II

ChoiceThe money granted is to be utilized to develop prototype products or services in this phase.

Phase I

ChoiceThe purpose in this phase is to decide the technical feasibility of the research effort and evaluate the quality of the company's performance through a considerably small monetary commitment

Rule 504 (Reg D)

Exempts offerings less than $1 million in any 12 month period, does not require disclosure, and unlimited purchasers

Identify an accurate statement about the Small Business Technology Transfer (STTR) program.

It requires a small business to formally work together with a research institution.

Rule 506 - Regulation D

No limit on dollar amount that can be sold Sale can be to unlimited number of accredited investors but no more than 35 unaccredited investors and they must be sophisticated investors. No general solicitation allowed If sale is to accredited investors only need to give information they request; if sale is to unaccredited investor info. that must be given similar to that in full registration statement Investor cannot resell for 1 yr. after purchase

blood equity

Personal funds

Risk of venture

The higher the amount of leverage (debt/total assets), the greater the risk in the venture.

Which of the following bases need to be evaluated by an entrepreneur for choosing alternative sources of external funding for his or her venture?

The length of time the funds are available The costs involved The terms of the contract

Identify a true statement about personal funds

They are vital in attracting outside funding.

True or false: Real estate cannot be used in asset-based financing.

false. Real estate is also frequently used in asset-based financing.

504 loan program

provides fixed-rate financing to acquire machinery, equipment, or even real-estate for a maximum value of $1 million

Installment loans can be obtained by a venture

with a track record of sales and profits

In the context of the types of investors, a similarity of Rule 504, Rule 505, and Rule 506, which are part of Regulation D, is that

they do not permit general advertising or solicitation through public media

Identify a true statement about character loans

These loans frequently must have the assets of the entrepreneur or other individual pledged as collateral or the loan cosigned by another individual.

Identify a true statement about family and friends who act as investors for entrepreneurs.

They are most likely to invest because of their relationship with the entrepreneur.

Identify a true statement about self-liquidating loans

They are often used for seasonal financing and for building up inventories.

Commercial Banks

are most often the source of short-term funds commonly used by entrepreneurs when collateral is available.

difficulty of family and friends investors

Feel they have the right to interfere in the venture's operations

Which of the following are categories of equipment financing?

Financing used equipment already owned by the company Sale-leaseback financing Financing the purchase of new equipment

When strong creditworthy customers are involved in an accounts receivable loan, an entrepreneur can develop a factoring arrangement. Which of the following statements is true about this arrangement?

In the event that any of the receivables is not collectible, the factor (the bank) sustains the loss, not the business.

inventory loans.

Inventory can usually act as the basis of a loan, when the inventory is more liquid and can be easily sold.

Which of the following are disadvantages of using outside capital for funding a startup?

It often decreases the venture's drive for sales and profits. It can reduce the venture's flexibility and impact the direction, drive, and creativity of the entrepreneur.

Internal Funding

Short-term internal funds can be used to fund short term assets AND Collect bills more quickly to generate funds

When an entrepreneur is unable to secure a regular commercial bank loan, an alternative is a guaranty from

Small Business Administration

Basic 7 (a) Loan Guaranty

Small Business Administration's primary business loan program.

Which of the following are conventional bank loans?

Straight commercial loans Lines of credit Character loans

Lease Financing

The company procures the use of the equipment through a small down payment amount and an assurance to make a specified number of payments over a period.

Sale-leaseback financing

The entrepreneur sells the equipment to a lender and then leases it again for the life of the equipment

True or false: Unlike the Small Business Technology Transfer (STTR) program, the Small Business Innovation Research (SBIR) program requires that a principal investigator (PI) must spend a minimum of 10 percent effort on a project and have a formal appointment with or commitment to a small-business concern (SBC).

This is false. Unlike the SBIR program, the STTR program requires that a PI must spend a minimum of 10 percent effort on a project and have a formal appointment with or commitment to a SBC.

______ is referred to as leveraging the firm.

Using debt as a financing instrument

character loan

When the business itself does not have the assets to support a loan, the entrepreneur may need a(n)

private offering

a formalized method for obtaining funds from private investors

long-term debt

a liability that falls due beyond one year from the date of the financial statements, and are dependent on the requirement of a collateral

Asset-Based Financing

accepts as collateral the assets of a firm in exchange for the loan

Trust receipts

are a specific type of inventory loan that is utilized to finance floor plans of retailers, such as automobile and appliance dealers.

Unlike public offerings, private offerings _____.

are faster and less costly when a limited number of sophisticated investors are involved who also have the ability to absorb risk

equity financing

arranging funding by selling ownership shares in the company, publicly or privately

To ensure repayment, bank loans are based on the

assets or the cash flow of the venture

True or false: Bank lending decisions are solely based on quantifiable information.

false. Bank lending decisions are based on both quantifiable information and subjective judgments. The bank lending decisions are made according to the five Cs of lending: character, capacity, capital, collateral, and conditions.

Which of the following is true about accounts receivable loans?

Accounts receivable act as a good basis for a loan when the customer is well known and creditworthy.

Which of the following statements are true about research and development (R&D) limited partnerships?

An R&D limited partnership typically takes a minimum of six months to establish. The restrictions placed on the technology developed as a by-product of the R&D effort can be substantial.

short-term debt

Any debt that must be paid in less than one year from the date of the financial statement on which it is reported.

Rule 505 - Regulation D

Can sell $5 M in 12 month period Can sell to an unlimited number of accredited investors but can sell to a maximum of 35 unaccredited investors No general solicitation allowed Securities cannot be resold by investor for 12 months after initial purchase

Phase III

ChoiceFunds from the private sector or regular government procurement contracts are required to commercialize the developed technologies in this phase.

General Partner

ChoiceThe overall coordinating party in a partnership agreement

Limiting partner

ChoiceThe party that generally provides money in a partnership agreement and has a less responsibilities

Commercial banks

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public

Which of the following is true about limited partners in a research and development partnership?

The limited partners share in the profits when the technology is successfully developed in the later years.

Identify a true statement about equity partnerships in research and development limited partnerships.

The limited partners' interest can be transferred to equity in the new corporation on a tax-free basis.

Identify a true statement about lines of credit financing

The loan must be repaid or reduced to a certain agreed-upon level on a periodic basis.

Identify a true statement about long-term loans.

The principal can sometimes start being repaid in the second or third year of the loan, with only interest paid the first year.

Which of the following statements are true about research and development (R&D) limited partnerships?

The restrictions placed on the technology developed as a by-product of the R&D effort can be substantial. An R&D limited partnership typically takes a minimum of six months to establish.

True or false: Regulation D fails to provide rules governing the notices of sale and the payment of any commissions involved.

false. Regulation D requires the issuer of a private offering to file five copies of Form D with the Securities and Exchange Commission 15 days after the first sale, every 6 months thereafter, and 30 days after the final sale. It also provides rules governing the notices of sale and the payment of any commissions involved.

True or false: Typically, a research and development (R&D) limited partnership is less expensive to establish than conventional financing.

false. There are some costs involved in establishing a research and development (R&D) limited partnership. Typically, it is more expensive to establish than conventional financing.

debt financing

funds raised through various forms of borrowing that must be repaid (e.g. trade credit, bank loan, issuing bonds)

Generally, the application format for a bank loan is a

mini business plan that consists of an executive summary and business description

Identify a true statement about the Small Business Innovation Research (SBIR) program that was created as part of the Small Business Innovation Development Act.

offers research and development funds to small businesses from all federal agencies with budgets in excess of $100 million.

SBA Microloan Program

provides short-term loans of up to $50,000 to small businesses for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery, or equipment.

Regulation D

regulation and exemption for reports and statements required for selling stock to private parties based on the amount of money being raised

An accurate statement about installment loans is that these

short-term funds are frequently used to cover working capital needs for a period of time

Long-term loans are usually available only to

strong, mature companies

asset base for loans

tangible collateral valued at more than the amount of money borrowed

short-term financing

the money needed to pay for the current operating activities of a business