Chapter #9 Sources of Financing due

Most companies that make Rule 506 offerings raise between ________ and ________ in capital. Select one: a. $100,000; $500,000 b. $200,000; $1 million c. $100 million; $200 million d. $1 million; $50 million

$1 million; $50 million

The Global Entrepreneurship Monitor reports that the average amount of capital that entrepreneurs use to start small businesses is about ________. Select one: a. $50,000 b. $15,000 c. $100,000 d. $25,000

$15,000

Less than ________ percent of all U.S. companies are publicly-held corporations. Select one: a. 10 b. 12 c. 1 d. 5

1

The average venture capital firm screens about ________ investment proposals each year and ultimately invests in ________ of them. Select one: a. 10,000; 12 b. 5,000; 80 c. 5,000; 13 d. 1,000; 1

1,000; 1

Typically, the entire process of going public takes ________, but it can take much longer if the issuing company is not properly prepared for the process. Select one: a. 30 days b. 120 to 180 days c. one year d. 6 months

120 to 180 days

Approximately ________ percent of all venture capital invested comes from corporations. Select one: a. 8 b. 2 c. 17 d. 24

17

Although there is no limit on the amount of stock it can buy, a typical venture capital firm will purchase less than ________ percent of the ownership in a small firm. Select one: a. 70 b. 21 c. 80 d. 50

50

Rule ________ of the Regulation D exemptions is the most popular. Select one: a. 314 b. 202 c. 504 d. 426

504

The Tanning Parlor is in the middle of the busy season. Owner Sunny Bright has hired extra help and encountered some unexpected repairs that have left her short of operating capital. What type of financing would Sunny most likely use in this situation? Select one: a. A discounted installment contract b. Trade credit c. Floor planning d. A line of credit

A line of credit

Investment bankers who underwrite public stock offerings typically look for all but which of the following characteristics in a small company? Select one: a. A strong record of earnings. b. A solid position in a stable market. c. Consistently high growth rates. d. A sound management team with experience and a strong board of directors.

A solid position in a stable market.

A term loan ________. Select one: a. is typically unsecured b. may contain restrictions or covenants c. is based on past operating history and a firm's high probability of repayment d. All of these

All of these

Before making a loan to a business startup, banks prefer to see ________. Select one: a. sufficient cash flow generated by the business b. ample collateral for the loan amount c. a SBA guarantee to insure the loan d. All of these

All of these

In a Regulation D stock offering, the company ________. Select one: a. sells its shares directly to private investors b. makes a private placement without actually "going public" c. does not have to register its shares with the SEC d. All of these

All of these

In an initial public offering, the underwriter, or investment banker, serves to ________. Select one: a. advise and help prepare the company's registration statement for the SEC b. determine the price of the shares issued in the offering c. sell the company's stock through an underwriting syndicate of other investment bankers it develops d. All of these

All of these

Which of the following represents capital? Select one: a. Inventory b. Equipment and machinery c. Cash d. All of these

All of these

The Boat and Ski Shop, a small retail boat shop, would most likely rely on which of the following methods to finance its inventory? Select one: a. Installment loans b. Discounted installment contracts c. Floor planning d. Trade credit

Floor planning

________ is/are a method of financing frequently used by retailers of "big ticket items" such as autos. Select one: a. Trade credit b. Floor planning c. Installment loans d. Discounted installment contracts

Floor planning

Which of the following is not a characteristic of a typical angel investor? Select one: a. Investing in the startup phase of the company. b. Investing money locally. c. Willing to wait seven years or more to cash out an investment. d. Purchasing majority ownership in the company.

Purchasing majority ownership in the company.

When searching for capital to launch their companies, entrepreneurs should remember several "secrets" to successful financing. Which of the following is not one of those secrets? Select one: a. Choosing the right sources of capital can be just as important as choosing the right form of ownership or the right location. b. The money is out there, but the key is knowing where to look. c. Raising money should not take very long therefore, if it does not come quickly, it probably will not come at all. d. Creativity counts when searching for financing.

Raising money should not take very long therefore, if it does not come quickly, it probably will not come at all.

When evaluating a company as a potential investment target, venture capitalists look for all but which of the following? Select one: a. Convenient and profitable exit strategy b. Potential for high returns c. A competent management team d. Stable industry

Stable industry

________ loans are typically unsecured. Select one: a. Term b. Asset-based c. Equity d. Capital

Term

Question text Which of the following is not an asset-based financing technique? Select one: a. Discounting accounts receivable b. Inventory financing c. Term loan d. None of these

Term loan

In asset-based borrowing, the ________ rate is the percentage of an asset's value that a lender will lend. Select one: a. margin b. prime c. discounted d. advance

advance

The largest single source of external equity capital for small businesses is ________. Select one: a. the stock market (i.e., "going public") b. venture capitalists c. angels d. Small Business Administration loans Feedback

angels

The most common method used by commercial finance companies to provide credit to small businesses is ________. Select one: a. profitability based b. asset based c. unsecured lines of credit or "character loans" d. insurance based

asset based

A company pledging its inventory, accounts receivables, or fixtures as collateral for a loan is using ________. Select one: a. floor planning b. asset-based financing c. margin loan d. trade credit

asset-based financing

Entrepreneurs needing between $100,000 and $3 million in the current financial environment will likely find acquiring financing to be ________. Select one: a. confusing b. easy c. challenging d. attainable

challenging

The single most important ingredient in making a successful public offering is ________. Select one: a. negotiating a favorable letter of intent b. preparing a suitable registration statement c. choosing a capable underwriter d. filing Regulation D with the SEC

choosing a capable underwriter

For small businesses, ________ are the very heart of the financial market, providing the greatest number and variety of loans to small companies. Select one: a. credit unions b. commercial finance companies c. commercial banks d. factors

commercial banks

Venture capitalists look for ________ as the most important ingredient in the success of any business. Select one: a. competent management b. innovation c. a growth industry d. a competitive edge Feedback

competent management

Term loans impose restrictions called ________. Select one: a. rules b. conditions c. limits d. covenants

covenants

A method of raising capital that taps the power of social networking and allows entrepreneurs to post their elevator pitches and proposed investment terms on specialized Web sites and raise money from ordinary people who invest as little as $100 is called ________. Select one: a. crowd funding b. bootstrapping c. angel financing d. venture capital

crowd funding

Unlike entrepreneurs of the past, today's entrepreneurs ________. Select one: a. are finding more government interest and funding for business start-ups than in the past decade b. find fewer closed doors as small business start-ups have become less risky c. are spending a smaller percentage of their time raising capital for their businesses d. have to piece their capital together from several sources

have to piece their capital together from several sources

The first place an entrepreneur should look for startup capital is ________. Select one: a. the Small Business Administration b. a bank c. his own savings d. a venture capitalist

his own savings

Entrepreneurs basically "borrow from themselves" by pledging their ________ as collateral for the loans they receive in a ________. Select one: a. home; home equity loan b. big ticket items; floor loan c. business assets; home equity loan d. business; commercial loan

home; home equity loan

The general trend of angel financing is that it has ________ as a source of capital for entrepreneurs over the past few years. Select one: a. stabilized b. decreased c. disappeared d. increased

increased

A(n) ________ is when a company raises capital by selling shares of its stock to the general public for the first time. Select one: a. partnership b. venture capital offering c. initial public offering d. debt equity arrangement

initial public offering

A ________ is an agreement with a bank that allows a small business to borrow up to a predetermined specified amount during the year without making an application each time. Select one: a. term loan b. factor c. line of credit d. floor plan

line of credit

The primary disadvantage of equity capital is that the entrepreneur ________. Select one: a. must give up some (perhaps most) of the ownership in the business to outsiders and experiences the disadvantage of the risk/return tradeoff in the form of higher interest rates b. must give up some (perhaps most) of the ownership in the business to outsiders c. experiences the disadvantage of the risk/return tradeoff in the form of higher interest rates d. must repay it at some point with interest

must give up some (perhaps most) of the ownership in the business to outsiders

When looking for an angel, the key is ________. Select one: a. using computer matches b. networking c. waiting until you need the money d. looking across industries

networking

When looking for an angel, the key is ________. Select one: a. waiting until you need the money b. networking c. looking across industries d. using computer matches

networking

The formal underwriting agreement between the company and the underwriter is signed ________. Select one: a. on the last day before the registration statement becomes effective b. at the time of the letter of intent c. during the road show d. when the statement of registration is filed

on the last day before the registration statement becomes effective

Angels are an excellent source of ________ money, often willing to wait ________ years or longer to cash out their investment. Select one: a. immediate; 5 b. long-term; 10 c. patient; 7 d. passive; 20

patient; 7

Because of the risk/return tradeoff, small businesses that borrow money repay it with interest at the ________. Select one: a. lender's cost of capital b. prime interest rate plus a few percentage points c. prime interest rate d. prime interest rate minus a few percentage points

prime interest rate plus a few percentage points

Entrepreneurs are most likely to give up more equity in their businesses in the ________ phase of their companies than in any other. Select one: a. startup b. product shipping c. product testing d. product development

startup

A bank loan that imposes restrictions or covenants on the business decisions an entrepreneur makes concerning the company's operations is called a ________. Select one: a. home equity loan b. term loan c. floor planning d. line of credit

term loan

A bank loan that imposes restrictions or covenants on the business decisions an entrepreneur makes concerning the company's operations is called a ________. Select one: a. term loan b. floor planning c. home equity loan d. line of credit

term loan

The primary advantage of equity capital is ________. Select one: a. that it does not have to be repaid like a loan does b. that it does not appear on a company's balance sheet c. its lower interest rate d. that it is readily available to a large number of entrepreneurs from a variety of lenders

that it does not have to be repaid like a loan does

The biggest benefit of a public stock offering is ________. Select one: a. the capital infusion the company receives b. the ability to use its stock to acquire other companies c. a listing on a stock exchange d. the ability to use its stock to attract and retain key managers and employees

the capital infusion the company receives

The "wait to go effective" is the time period when ________. Select one: a. the company is waiting for SEC approval after filing the registration statement b. the firm prices the stock for the offering c. the SEC registration statement is being prepared d. the underwriter decides what regulation to file under

the company is waiting for SEC approval after filing the registration statement

Commercial banks provide ________ of loans to small business. Select one: a. about 50 percent b. the greatest number and variety c. more than 89 percent d. very few

the greatest number and variety

Select one: a. the impact of giving up some personal control and sharing profits with others b. what interest rate the partner is expecting c. the ramifications of having another person on the payroll d. the partnership will only have an impact on sharing profits

the impact of giving up some personal control and sharing profits with others

The document outlining the details of the agreement between the entrepreneur and the stock underwriter is called ________. Select one: a. a "blue sky" agreement b. Regulation D c. the registration statement d. the letter of intent

the letter of intent

The most common type of commercial bank loan granted to small businesses is ________. Select one: a. the line of credit agreement b. the unsecured term loan c. the short-term loan d. floor planning

the short-term loan

The recent turbulence in the financial markets has caused banks to ________ their lending standards, making it ________ for small businesses to qualify for loans. Select one: a. tighten; easier b. relax; easier c. relax; more difficult d. tighten; more difficult

tighten; more difficult

The goal of the SEC's Regulation D is ________. Select one: a. to make the standards for making a public stock offering more stringent b. to discourage small companies from trying to "go public" c. to minimize the expense and time required to raise equity capital for small businesses d. to make it easier for the SEC to detect companies whose stock would be bad investments for consumers

to minimize the expense and time required to raise equity capital for small businesses

Asset-based borrowing permits small businesses ________. Select one: a. to obtain loans more easily but with less borrowing power than using unsecured lines of credit b. to borrow up to 100 percent of the value of their inventory or their accounts receivable for the money they need for long-term goals c. access to a source of funds ideally suited for long-term financing needs d. to use normally unproductive assets such as accounts receivable and inventory

to use normally unproductive assets such as accounts receivable and inventory

A/An ________ is a private, for-profit organization that purchases equity positions in young businesses that will potentially produce returns of 300 to 500 percent over five to seven years. Select one: a. commercial bank b. venture capital company c. angel d. SB-1 filing

venture capital company