Sm Bus Management Ch 14

Which of the following statements regarding secured debt are correct? (Check all that apply.)

It is the debt that is secured by specific assets that can be seized for nonpayment. Commercial banks and credit unions make secured loans. Asset loans are usually secured by large assets like automobiles, machinery, and other equipment.

Which of the following statements regarding profitability are correct? (Check all that apply.)

The business' capacity to earn profits is the most single factor for being able to borrow significant amounts of money. Cash flows from operations that have been consistent indicate that the business can reliably convert profits to cash. Profitability is a primary measure of the business' capacity to repay loans.

Financial risk is

the uncertainty of returns and the probability of losing money.

Identify an important consideration when giving a gift to help someone start or continue their business.

Consider nonvoting stock, if the gift is an equity investment.

Which of the following are important considerations when giving a gift to help someone start or continue their business?

Put the agreement into writing. If it is a loan, the agreement should outline the payment terms including the interest rate. The agreement should specifically state that it is a gift.

is the level of probability that an investment will not produce expected gains.

Blank 1: Risk

Using low-cost or free techniques to minimize the cost of doing business is called .

Blank 1: bootstrapping

Identify an advantage of borrowing money for capital investment.

It improves the potential for greater rates of return for business owners.

Which of the following is true of royalty financing?

It involves an investor providing funds to a business for a contractual percentage of the revenues of the firm for a contractual period.

______ equity is money from selling part of the business to people who are not and will not be involved in the management of business.

Outside

Which of the following are reasons business owners should use outside equity. (Check all that apply.)

Outside equity lessens the owner's exposure to financial loss. The business will not have increased costs in the form of interest.

Which of the following is a benefit of using outside equity?

Outside investors often bring new ideas, processes, and procedures to existing businesses.

Which of the following statements regarding bootstrapping are correct? (Check all that apply.)

Studies report that between 90 and 95% of start-up business are initially funded through bootstrapping. The majority of small business start-ups are funding by bootstrapping. Business owners often use their own capital and the funds generated by operating the business to finance the business' start-up and growth.

______ is a legal obligation to pay money in the future.

debt

Using low-cost or free techniques to minimize the cost of doing business is called __________.

Blank 1: bootstrapping

Which of the following are one of the Four Cs of borrowing? (Check all that apply.)

Capacity of the business to repay the loan. Collateral that can be used to secure the loan. Character of the business' owners. Conditions of the industry and economy in which the business operates.

______ is/are payments of profits to the owners of corporations.

Dividends

True or false: Dividends are a charge for the use of money and is usually calculated as a percentage of the principal.

False

______ risk is the uncertainty of returns and losing money.

Financial

Which of the following statements regarding outside equity are correct? (Check all that apply.)

It is called equity, because the investors have legal ownership rights to the business. These individuals are called investors, since they are lettering a business owner use their money now in order to get wealth in the future. People who buy ownership rights in a business are considered outside equity investors. They are said to be outside, since they are not part of the business' management.

Which of the following are the broad categories of financial ratios? (Check all that apply.)

Liquidity ratios Activity ratios Leverage ratios Profitability ratios

Which of the following statements regarding collateral are correct? (Check all that apply.)

The value of collateral is simply the estimated market value of the asset being used. Collateral can include stocks, bonds, and physical goods, like land. Most intangible assets are not thought to be good collateral.

Which of the following statements regarding microlenders are correct? (Check all that apply.)

They can only lend up to $50,000. Loans are guaranteed by the Small Business Administration. Loans require less paperwork than regular Small Business Administration backed loans.

Which of the following statements regarding angel investors are correct? (Check all that apply.)

They like businesses that are located near them. They invest in businesses due to their personal interest and as a personal investment. They invest their own money. They typically invest between $50 and $250K.

Which of the following statements about tax credits are correct? (Check all that apply.)

They reduce amount of taxes that a business will pay. They may be provided by federal, state, ore even local governments. They are used to encourage investment in specific types of assets, economic activities, or other purposes.

A community development organization is

an SBA organization that is authorized to make insured loans to small businesses that are expected to increase economic activity in an area.

Wealthy individuals who invest in companies in relatively early stages of their development are called Blank______.

angel investors

Something of value given or pledged as security for payment of a loan is called Blank______.

collateral

______ capital is capital resources that neither provide any ownership nor require any repayment to the giver.

gift

A(n) Blank______ is an SBA-approved partner that offers SBA-guaranteed loans of under $50,000 to eligible small businesses.

microlender

A method of obtaining capital in which investors give money to a business in return for a guaranteed percentage of revenues is referred to as Blank______.

royalty financing

Loans that provide the lender with the legal right to seize specific assets in the event of nonpayment is called Blank______ debt.

secured

A Blank______ is a direct reduction in the amount of taxes that must be paid, dependent on meeting some legal criteria.

tax credit

Risk is

the level of probability that an investment will not produce expected gains.

Gift capital can be termed as capital resources that neither provide any ownership nor require any repayment to the giver.

True

The amount that revenues exceed expenses is known as .

Blank 1: profit or profitability

Which of the following statements regarding borrowing are correct? (Check all that apply.)

No matter the form of business, the lender makes the loan to the owner, not the business. The owner is not separated from the business, in fact the business is considered an extension of the owner. The owner's character is an important lending criteria and it is judges by his or her personal credit rating.

True or false: An advantage of borrowing money for capital investment is that borrowing permits the owners to keep a higher level of control of the business.

True

Debt is

a legal obligation to pay money in the future.

Which of the following statements about debt are correct? (Check all that apply.)

Businesses may borrow from many sources like banks, development agencies, governments, and individuals. It is a claim on the value of assets that a business owns. The federal government provides loan guarantees for small businesses through the SBA to make borrowing easier It can take many forms and be both secured by an asset and unsecured like when borrowing using a credit card. Banks and other creditors can force a business into bankruptcy if it does not pay it debt.

Match the broad categories of financial ratios (in the left column) with their descriptions (in the right column).

Activity ratios matches Choice They calculate how productive a particular asset is in producing sales activity. Profitability ratios matches Choice They calculate management efficacy in generating wealth from sales and from invested funds. Liquidity ratios matches Choice They determine a business's capacity to pay debts and expenses that are due in the current accounting period. Leverage ratios matches Choice They determine the relative risk that a business problem could cause bankruptcy.

A(n) ______ is an organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area.

community development organization