Question 1

Small business investment companies (SBICs)

Accepted Answer

SBICs are licensed and regulated by the Small Business Administration (SBA), not the Federal Trade Commission. SBICs provide long-term loans or equity capital to small businesses. They obtain their capital from private investors and borrow from the SBA at attractive interest rates, not local governments. They are not limited to providing only short-term financing.

Question 2

Barry needs financing to start his inner-city venture. His goal is to provide part-time employment for at-risk youths to keep them off the streets and engaged in learning marketable skills. Barry may find some assistance from

Accepted Answer

A community-based financial institution is most likely to provide financing for a socially responsible venture such as Barry's. They may also have programs specifically aimed at supporting inner-city businesses or youth employment initiatives. The other options - the SBIR program, small business investment companies, and venture capital firms - are more geared towards technology or high-growth startups, and may not be as interested in supporting a social venture with a smaller potential for financial return.

Question 3

Gina owns a clothing resale store in a low-income neighborhood. Since opening, the store has hired five employees and is making a small profit. The store is the only business in her area and often sponsors fundraisers at the location. Because the store is in need of expansion capital, what type of funding should Gina seek and why?

Accepted Answer

The answer of Gina owns a clothing resale store in...

Question 4

Lyman's business has grown to 400 employees with annual revenues of $15 million. He would like to expand further but needs another $5 million. He should consider

Accepted Answer

The answer of Lyman's business has grown to 400 employees...

Question 5

Which of the following types of crowdfunding is subject to securities laws?

Accepted Answer

Equity investing involves the sale of securities, which means it is subject to securities laws and regulations. Donations, Rewards, and Pre-purchases do not involve the sale of securities and therefore are not subject to securities laws.

Question 6

Allie is starting a purse business and is considering using a crowdfunding portal to raise money for her small business. In order to do so, what requirements must be met by Allie? What potential problems with crowdfunding should she be aware of before she undertakes such an endeavor?

Accepted Answer

The answer of Allie is starting a purse business and...

Question 7

Connie owns a small but growing company that produces gorilla glass for smartphones. One possible source of funding might be

Accepted Answer

Samsung is a competitor in the smartphone industry and would benefit from having a reliable supplier of gorilla glass. Additionally, Samsung has a history of investing in and partnering with smaller companies in the technology industry.

Question 8

Describe the two categories of private equity investors who offer financing to small businesses.

Accepted Answer

The answer of Describe the two categories of private equity...

Question 9

Private placement

Accepted Answer

Private placement is the sale of capital stock to selected individuals, usually institutional investors like banks, insurance companies, and pension funds. It is intended to raise funds from investors without offering the shares to the general public. The selected individuals must be considered "accredited investors" and the company issuing the shares must comply with securities laws such as Regulation D of the Securities Act of 1933. Private placement allows the original owners to maintain ownership control of the company.

Question 10

Elena plans to open a nonprofit child-care center in her depressed neighborhood. She may qualify for an SBA loan program that provides loans of up to $50,000 known as the

Accepted Answer

The 7(m) Microloan program provides loans up to $50,000 to small businesses, including nonprofit child-care centers, in underserved markets, such as depressed neighborhoods. The other SBA loan programs mentioned are not specifically designed for microloans in underserved markets.

Question 11

Fans set up a crowdfunding account to produce new, not-for-profit episodes of Star Trek based on the original series. This type of crowdfunding uses the _____ approach.

Accepted Answer

The use of crowdfunding to produce new Star Trek episodes based on the original series is an example of the donations approach, as contributors are giving money to support the project without the expectation of receiving any tangible rewards or equity in return.

Question 12

Match the definition with its term.
-An SBA program that helps to finance companies that plan to transform laboratory research into marketable products

Accepted Answer

The Small Business Innovative Research (SBIR) Program helps to finance companies that plan to transform laboratory research into marketable products.

Answer: I 
 Small business investment companies (SBICs) are formal venture capitalists that invest in small businesses.

Note: The other options listed are not relevant to the given definition.

Question 13

Marla runs a not-for-profit daycare center in her home located in a rural area. She is in need of $10,000 to purchase inventory, supplies, and equipment. What Small Business Administration program would be the best fit for Marla's situation and why?

Accepted Answer

The answer of Marla runs a not-for-profit daycare center in...

Question 14

Match the definition with its term.
-A loan program that helps small companies obtain financing through a guaranty provided by the SBA

Accepted Answer

The 7(a) Loan Guaranty Program is specifically designed to help small businesses obtain financing by providing a guaranty to lenders.

Answer: B 
 The 7(m) Microloan Program is a specific loan program that provides small loans to new or growing small businesses.

Answer: C 
 The Certified Development Company (CDC) 504 Loan Program is a loan program specifically designed to help small businesses with long-term, fixed-rate financing for major assets, such as building or equipment.

Answer: D 
 Community-based financial institutions are local lending organizations that provide small loans to small businesses in a specific area.

Answer: E 
 Formal venture capitalists are professional investors who invest large sums of money into high-growth potential businesses.

Answer: F 
 Informal venture capital refers to investments made by family and friends, rather than professional investors.

Answer: G 
 Loan covenants are agreements made between a lender and borrower that outline specific terms and conditions of a loan, such as interest rates and repayment terms.

Answer: H 
 The Small Business Innovative Research (SBIR) Program is a federal program that provides funding to small businesses for research and development projects.

Answer: I 
 Small business investment companies (SBICs) are privately owned investment companies that provide financing to small businesses.

Question 15

Nancy has decided to raise working capital for her upscale boutique business which currently has four locations and is considering franchising the concept in the next few years. Because of the company's current organization and anticipated future plans, the most likely form of financing would be

Accepted Answer

The answer of Nancy has decided to raise working capital...

Question 16

A drawback to "going public" is

Accepted Answer

Going public requires numerous SEC (Securities and Exchange Commission) requirements, such as financial reporting, disclosure of information, and compliance with regulations. This can be a time-consuming and costly process for the company. The other options are not necessarily drawbacks to going public but can be seen as benefits (A and D) or potential risks (C).

Question 17

Discuss two methods of selling stock.

Accepted Answer

The answer of Discuss two methods of selling stock....

Question 18

Match the definition with its term.
-A lender that uses funds from federal, state, and private sources to provide financing to small businesses in low-income communities

Accepted Answer

A community-based financial institution uses funds from federal, state, and private sources to provide financing to small businesses in low-income communities.

Answer: C 
 A Certified Development Company (CDC) 504 Loan Program is a type of loan program that is designed for small businesses in low-income communities.

Answer: I 
 Small business investment companies (SBICs) are lenders that provide financing to small businesses using funds from federal, state, and private sources.

Answer: B 
 The 7(m) Microloan Program is a loan program that provides financing to small businesses in low-income communities.

Answer: E 
 Formal venture capitalists are investors who provide funding to start-up and early-stage companies in exchange for equity.

Answer: F 
 Informal venture capital refers to funding provided by friends, family members, or other personal contacts to start-up or small businesses.

Answer: G 
 Loan covenants are terms and conditions that a borrower agrees to as part of a loan agreement, which can include financial performance targets, restrictions on borrowing or spending, and other requirements.

Answer: H 
 The Small Business Innovative Research (SBIR) Program is a program that provides funding to businesses that are developing innovative products or technologies.

Answer: A 
 The 7(a) Loan Guaranty Program is a loan program that provides financing to small businesses, with the government guaranteeing a portion of the loan to reduce the lender's risk.

Question 19

Violet's Catering is growing rapidly. A new customer has requested the company cater a retirement luncheon for 500 people, resulting in Violet's Catering needing a large order from the company's primary food vendor. Although the company is experiencing growth, cash flow is a concern. What would be the best financing option?

Accepted Answer

The answer of Violet's Catering is growing rapidly. A new...

Question 20

Janice loves to cook and go backpacking, and she had an idea for a backpacking cookbook that would combine ultralight ingredients into interesting and appetizing meals. However, she needs the money to research and test the recipes as well as cover printing and marketing expenses. How could Janice use the different crowdfunding options-donations, rewards, pre-purchase, or equity investing-to finance her cookbook?

Accepted Answer

The answer of Janice loves to cook and go backpacking,...

Quiz 12: A Firms Sources of Financing