Chapter 11 - ENT2612

Obtaining funds for a company in exchange for ownership is referred to as ___________.

Equity Financing

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.

Lease financing - ? Sale-leaseback financing - ?

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.

Limited Partner - ? General Partner - ?

Limited Partner - The party that generally provides money in a partnership agreement and has a less responsibilities General Partner - The overall coordinating party in a partnership agreement

Long term financing - ? Short term financing - ?

Long term financing - it is often used to buy a specific asset, with part of the value of the asset being used as collateral. Short term financing - The money is generally used to provide working capital to finance inventory, accounts receivable, or the operation of business.

Phase I - ? Phase II - ? Phase III - ?

Phase I - The 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. Phase II - The money granted is to be utilized to develop prototype products or services in this phase. Phase III - Funds from the private sector or regular government procurement contracts are required to commercialize the developed technologies in this phase.

Which of the following helps minimize possible difficulties in funding from family and friends?

Restricting the business arrangements to strictly business

The ______ provides fixed-rate financing to enable small businesses to acquire machinery, equipment, or even real estate in order to expand or modernize.

504 loan program

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.

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 scenarios exemplify the use of bootstrap financing by entrepreneurs? (Check all that apply.)

An entrepreneur buys raw materials in bulk to avail discounts. An entrepreneur opts for the use of co-op advertising with a channel member.

The ______ is the Small Business Administration's primary business loan program.

Basic 7(a) Loan Guaranty

Which of the following are conventional bank loans? (Check all that apply.)

Character loans Lines of credit Straight commercial loans

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

Commercial Banks

The financing method that involves an interest-bearing instrument, usually a loan, the payment of which is not directly related to the sales and profits of the venture is referred to as _______________________.

Debt Financing

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

FALSE

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

FALSE

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

FALSE

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).

FALSE

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

FASLE

Which of the following are categories of equipment financing? (Check all that apply.)

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

Funding Stage - ? Development Stage - ? Exit Stage - ?

Funding Stage - Money is invested for the proposed research effort by the sponsoring company and the limited partners. Development Stage - The research is conducted by the sponsoring company utilizing funds from the limited partners. Exit Stage - The sponsoring company and the limited partners financially enjoy the benefits of the effort.

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.

___________ refers to funds that come from sources within a company: profits, sale of assets, reduction in working capital, extended payment terms, and accounts receivable.

Internally generated funds

Identify a feature of 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? (Check all that apply.)

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

Which of the following is most likely true about bootstrap financing used by entrepreneurs?

It involves the use of any possible method for obtaining and conserving cash.

Identify a true statement about debt financing.

It is also termed asset-based financing.

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

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

Identify a benefit of a research and development (R&D) limited partnership for companies.

It supplies the required funds with a minimum amount of equity dilution while reducing the risks involved.

Which of the following are conventional bank loans? (Check all that apply.)

Lines of credit Character loans Straight commercial loans

Which of the following are true about using outside capital for funding a startup? (Check all that apply.)

Outside capital is not provided without the expectation of getting a good return. It generally takes around two to six months to raise outside capital or to conclude that there is no outside capital available.

_______________ includes (1) broad provisions created to simplify private offerings, (2) general definitions of what constitutes a private offering, and (3) specific operating rules—Rule 504, Rule 505, and Rule 506.

Regulation D

Which of the following are eligibility factors for all 7(a) loans offered by the Small Business Administration? (Check all that apply.)

Repayment ability from the cash flow of the business Management capability

True or false: The risk in a venture increases with the increase in the amount of leverage.

TRUE

Identify a true statement about the terms in a contract in a research and development limited partnership.

The liability for any loss suffered is borne by the limited partners.

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.

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 self-liquidating loans.

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

Identify a true statement about personal funds.

They are vital in attracting outside funding.

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

Trust receipts

________________ is referred to as leveraging the firm.

Using debt as a financing instrument

Unlike short-term debts, long-term debts ___________________.

are dependent on the requirement of a collateral

The ______ refers to the tangible collateral valued higher than the amount of money borrowed.

asset base for loans

Personal funds are termed ___________.

blood equity

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

character loan

Commercial banks provide funds in the form of ______________.

debt financing

A difficulty for entrepreneurs to raise funds from family and friends is that these kinds of investors ______.

feel they always have a right to interfere in the venture's operations

Generally, the application format for a bank loan is a ______.

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

An _____________________________is a formalized approach for obtaining funds from private investors.

private offering

An accurate statement about equity financing is that it ______________.

provides an investor some form of ownership position in the venture

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

A hybrid of the installment loan is the ______, by which funds are advanced to the company for 30 to 90 days

straight commercial loan

Long-term loans are usually available only to __________________.

strong, mature companies

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

An accurate statement about real estate loans is that it is ______.

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

Installment loans can be obtained by a venture _____________.

with a track record of sales and profits

Rule 504 - ? Rule 505 - ? Rule 506 - ?

Rule 504 - It permits a company to sell up to $500,000 of securities to any number of investors, irrespective of their sophistication, in any 12-month period. Rule 505 - It permits the sale of $5 million of unregistered securities in the private offering in any 12-month period to any 35 investors and to an unlimited number of accredited investors. Rule 506 - It permits an issuing company to sell an unlimited number of securities to 35 investors and an unlimited number of accredited investors and relatives of issuers.

The ______ 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.

SBA Microloan program

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

To ensure repayment, bank loans are based on the _______________.

assets or the cash flow of 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? (Check all that apply.)

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