Exam 11: Sources of Capital

Under the ____________ program,federal agencies with budgets over $1 billion are required to set aside 0.3 percent for small businesses.

All ventures have some equity.

Small Business Innovation Research grants are funded by federal agencies which provide a portion of their R&D funds to small businesses.

To improve the chances of being approved for a bank loan,the entrepreneur should prepare a "mini" business plan for the loan committee.

Explain the three major components of an R&D partnership.

The sponsoring company in a R&D limited partnership is the limited partner.

In limited partnerships:

Give examples of internal and external sources of funding. profits sale of assets reduction in working capital extended payment terms accounts receivable Entrepreneur's investment Loans/equity from family and friends commercial bank loans private investors (angels) R&D limited partnerships government loan programs and grants venture capital private placement/private offering

The type of funds most frequently used by businesses is externally generated funds.

The SBA's primary business loan program is:

Which grant program requires partners at universities or other non-profit institutions?

Most established R&D limited partnerships:

About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan.

External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.

Any patent rights on technology developed in SBIR grants are the property of the federal government.

All owners,regardless of percentage of ownership,are required to personally guarantee SBA loans.

Identify and explain the four types of loans used for cash flow financing. A.Installment loans - Installment loans can be obtained by a venture with a track record of sales and profits.These short-term funds are frequently used to cover working capital needs for a period of time,such as when seasonal financing is needed.These loans are usually for 30 to 40 days. B.Straight commercial loans - A hybrid of the installment loan is the straight commercial loan,by which funds are advanced to the company for 30 to 90 days.These self-liquidating loans are frequently used for seasonal financing and for building up inventories. C.Long-term loans - When a longer time period for use of the money is required,long-term loans are used.These loans (usually available only to strong,mature companies)can make funds available for up to 10 years.The debt incurred is usually repaid according to a fixed interest and principal schedule.The principal,however,can sometimes start being repaid in the second or third year of the loan,with only interest paid the first year. D.Character loans - When the business itself does not have the assets to support a loan,the entrepreneur may need a character (personal)loan.These loans frequently must have the assets of the entrepreneur or other individual pledged as collateral or the loan cosigned by another individual.Assets that are frequently pledged include cars,homes,land,and securities.