Financing a Business Quiz

What is the primary purpose of financing a business?

• To maximize profits

• To minimize expenses

• To obtain necessary funds for operations and growth

• To secure a competitive advantage

(a)   is a common source of funding for a new business.

• Business profits
• Government grants
• International loans
• Personal savings

The process of funding a new business or venture by a large number of investors over the internet is called:

• Angel investors

• Crowdfunding

• Peer-to-peer lending

• Venture capital

Websites like Prosper.com and LendingClub.com bring together investors and borrowers that both can benefit financially. These would be examples of:

• Commercial loans

• Crowdfunding

• Peer-to-peer lending

• Venture capital firms

In addition to the financial support, one of the benefits of being funded by a venture capital firm is that it comes with:

• Full control of the business

• Guidance and advice

• Lines of credit

• The freedom to make decisions

(a)   is NOT a source of short-term funding for a business.

• Commercial paper
• Factoring
• Selling newly issued stock
• Trade credit

Instead of waiting for her customers to pay what they owe, Jasmine sold her accounts receivable, at a discount, to another company. This company will then attempt to collect the full amount from Jasmine’s customers, making a profit. This type of financing is called:

• Factoring

• Retained earnings

• Short-term bank loans

• Trade credit

Ben’s Hardware Store receives most of its goods from suppliers without requiring payment at the time of delivery, essentially being able to “buy now, pay later.” This type of financing is called:

• Factoring

• Retained earnings

• Short-term bank loans

• Trade credit

In order to avoid negotiating a separate loan each time they need more funds, many companies work out arrangements with their bankers to obtain pre-approval so that they can draw on funds as needed. An example of this would be using (a)  

• A factor
• A line of credit
• A trade credit
• Retained earnings

Any profits that are earned and reinvested into a company are called:

• Debt financing

• Line of credits

• Retained earnings

• Revolving credits