Exam 15: Obtaining Debt Capital

Why do startups have a more difficult time borrowing money than existing businesses?

Loans made to finance improvements to business properties and plants are called _____ loans.

Lines of credit must be secured by a pledge of inventory,receivables,equipment,or other acceptable assets.

To lessen the risks involved in term loans,a bank will require some restrictive covenants in loan agreements.

Because of their greater risk taking and asset-based lending,finance companies usually place a larger reporting and monitoring burden on the borrowing firm to stay on top of the receivables and inventory serving as loan collateral.

Factoring makes it possible for a loan to be increased as sales and receivables grow.

Identify the two most likely sources of debt financing for a startup company.

Favorable lending decisions depend in large part on an entrepreneur's ability to sell and to develop a good relationship with the loan officer.

Time-sales financing is a way for a seller to generate cash from long-term installment accounts receivable.

Finance companies install measures in their agreements that help insure that they will not be immediately replaced by banks when a borrower's credit profile improves.

Leasing provides the flexibility of returning equipment after the lease period if it is no longer needed but not if that equipment has become technologically obsolete.

Time-sales financing is a way for a seller to obtain _____ from long-term installment accounts receivable.

To build credibility with bankers,entrepreneurs should borrow before they need to and then repay the loan.

Effective entrepreneurs think of the process of obtaining a loan as a sales job.

Commercial banks typically avoid existing businesses with long and substantial financial track records.

Banks will lend to a startup if the lead entrepreneur has a track record and is well connected in the local area.

Because banks may earn as little as one percent net profit on total assets,they are especially sensitive to the possibility of a _____.

The risk averse nature of commercial lending institutions is consistent with their _____.

When sellers who offer installment payment terms to purchasers of their equipment cannot themselves finance installment,they can sell and assign that installment contract to a bank or sales finance company.

Commercial finance companies have less flexible lending arrangements than banks.