Small Business Management Chapter 14

Which of the following statements regarding limited liability companies (LLCs) are correct?

They are formed by filing required documentation with a state government Owners can attract both debt and equity capital They have a choice, under federal law, of being taxed as either a corporation or a partnership

Which of the following information about tax credits is correct?

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

Which of the following statements regarding angel investors is true?

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

Which of the following is a strategy for maximizing the value of a business' employees

Use overtime for times of temporarily increased business Hire student interns, as they are often talented, motivated, and cost less than other employees

Wealthy individuals who invest in companies in relatively early stages of their development

angel investors

legal "artificial" entity that is formed by filling specific documents with a state government

corporation

A business that collects, organizes, and details data concerning an entity's use of debt

credit reporting agency (CRA)

a legal obligation to pay money in the future

debt

payments of profits to the owners of corporations

dividends

An SBA-approved partner that offers SBA-guaranteed loans of under $50,000 to eligible small businesses

microlender

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

outside capital

The amount that revenues exceed expenses

profit

An equity investor's primary concern is

the firm's growth potential

gain on investment formula

(payout - investment + dividends) / investment

Which of the following is a reason why bootstrapping is a common practice among small business start-ups?

Banks do not lend money to start-up businesses.

Identify the reasons why bootstrapping is common among small-business start-ups

Business owners usually do not want to share ownership. External equity capital is not accessible for a majority of small business start-ups.

Which of the following are the Four Cs of borrowing?

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

legislation regarding consumers' rights vis-a-vis credit reporting agencies

Fair Credit Reporting Act

Which of the following statements regarding secured debt are correct?

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

Which of the following statements about accelerators is correct?

Most accelerators take an equity stake in the businesses they help They tend to specialize in companies in a specific segment like biotechnology, fashion, women-owned firms, etc. The goal is to accelerate a start-up from its early stages to being ready to pitch for investment

Which of the following statements regarding collateral are correct?

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

Which of the following are reasons business owners should use outside equity?

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

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

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

Identify a strategy for maximizing the value of a business's employees.

Use of contractors

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

community development organization

Identify a suggestion to help a business succeed in crowdfunding

Create a snappy, professional-looking video about the business

Which of the following are suggestions to succeed in crowdfunding

Document the business as it will have to be a corporation or an LLC. Create an enthralling story to convince potential funders of the value of the plan. Write a business plan to show how the business will work to earn profits.

Identify the primary credit reporting agencies (CRAs)

Experian, TransUnion, Innovis, Equifax

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 a firm for a contractual period

When an individual sells part of his or her business, the money he or she gets

equity capital

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

false

the percentage amount that the payout of an investment offers to its investor

gain on investment

Which of the following statements regarding the Fair Credit Reporting Act are true?

The credit report agencies must supply any information that the customer provides it to the source of inaccurate information The credit report agency has 30 days to investigate if a customer complains that there is inaccurate information on their record It requires that all information reported by credit report agencies is accurate

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

gift capital

Recovering the value of investment through a sale of a firm or its assets

harvest

Which of the following statements regarding unsecured debt are correct?

A lender would generally have to file a lawsuit or force the business into bankruptcy to collect the unpaid debt. These loans are often based on the business' character. The lender cannot seize any specific asset in the event of nonpayment.

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

risk

A private business that is authorized to make SBA-ensured loans and to start-ups and small businesses

small business investment company (SBIC)

True or false: The limited liability company form of ownership allows owners to decide whether the business will be taxed as a corporation or a partnership.

True

Which of these statements regarding outside equity are correct?

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

Which of the following statements about grants are correct?

The SBA offers a loan and grant search tool for small business owners The U.S. government, most state governments, and semiprivate and private economic development agencies offer grants The purpose of grants is to increase economic activity, provide job growth, and increase the overall standard of living for citizens

Which of the following statements regarding profitability are correct?

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