Leach TB Chap12 Ed3


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CHAPTER 12 OTHER FINANCING ALTERNATIVES True–False Questions T. 1. Despite the high risk and costs of using a facilitator or up-front fee solicitor to obtain financing, many start-ups never-the-less seek them as a source of funds due to the length of time it takes to raise new funds. F. 2. Collateral plays an important role in determining the willingness to lend and the amount and terms of the loan, making it the most important factor in the lending process. F. 3. Commercial loan officers have the expertise to project new venture’s business successes, and thus are as willing to make funds available to entrepreneurs on the same basis as other businesses. F. 4. Because investors and commercial lenders both seek returns on the funds given to start-up firms, entrepreneurs can obtain financing as easily from either source. T. 5. Because of loan restrictions, obtaining funding from commercial lenders is prohibitive for entrepreneurs. T. 6. Unlike traditional commercial banks, venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms. T. 7. Among start-ups, it is widely understood that bank debt (outside of Small Business Administration loans), is not a very realistic source of financing for ventures with less than two years operating results. F. 8. Credit cards issued to start-ups have proven to be an alternative source of start-up financing. F. 9. Factoring is the sale of payables to a third party at a discount to their face value. T. 10. In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables. T. 11. With venture leasing, one component of the return to the lessor is the opportunity to take an equity interest in the venture. 85
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Chapter 12: Other Financing Alternatives F. 12. The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of the loan principal. F. 13. Commercial banks receive a portion of their returns from warrants in addition to the receipt of interest and the repayment of the principal that was lent. T. 14. Factoring is the selling of receivables to a third party at a discount from their face value. F. 15. Receivables lending is the use of receivables as collateral for an equity issue. T. 16. By an act of Congress, the Small Business Administration (SBA) was created for the purpose of fostering the initiation and growth of small businesses. F.
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This note was uploaded on 12/05/2009 for the course FIN Fin 595 taught by Professor Shabbir during the Spring '09 term at CSU Dominguez Hills.

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