Chapter 9: Finances: Raising Capital for New Ventures

1. The most used form of unsecured form of borrowing is ______.

  1. mortgages
  2. credit cards
  3. bank loans
  4. overdrafts

Answer: B

Explanation

Credit cards are the most used form of unsecured borrowing – often because the credit level has already been agreed.

2. Which of the following is a disadvantage of using credit card debt as a means of business finance?

  1. easy to use
  2. easier to get than other forms of credit
  3. cost
  4. widely accepted

Answer: C

Explanation

Interest rates on credit cards are generally higher than on other sources of credit.

3. Establishing your business as a limited company allows for ______.

  1. the sale of equity (shares) to external investors
  2. the raising of bank finance
  3. the use of credit card debt
  4. bootstrapping

Answer: A

Explanation

A limited company can issue shares in the venture, in a way that is not possible with other forms of business.

4. Factoring refers to ______.

  1. the bank provides the debt collection service and your customer is aware that a third party is involved
  2. the bank agrees to pay a percentage, for example 80%, of approved debts as soon as they receive a copy of the invoice
  3. the bank always agrees to pay all approved debts as soon as they receive a copy of the invoice
  4. the bank asks customers to pay the money direct to the bank

Answer: B

Explanation

Factoring refers to where the bank agrees to pay a percentage, for example 80%, of approved debts as soon as they receive a copy of the invoice.

5. Which of the following statements is correct?

  1. There are plenty of bright ideas. What makes the difference is the financier’s ability to provide enough funding.
  2. There are few of bright ideas out there and it is much harder to have one than to execute it. It makes no difference whether someone has the ability to turn that bright idea into a business and deliver it.
  3. There are plenty of bright ideas out there but it is much easier to have one than to execute it. What makes the difference is somebody's ability to turn that bright idea into a business and deliver it.
  4. There are plenty of bright ideas out there but it is much easier to have one than to execute it. What makes the difference is the quality of the bright idea.

Answer: C

Explanation

There are plenty of bright ideas out there but it is much easier to have one than to execute it. What makes the difference is somebody’s ability to turn that bright idea into a business and deliver it.

6. Venture capital is a very fast way of raising finance.

  1. True
  2. False

Answer: B

Explanation

It is difficult to generalise because every deal is different but usually it takes between three to eight months to raise funding from VC’s.

7. What does ‘IPO’ stand for?

  1. investors public offering
  2. initial public opportunity
  3. initial public offering
  4. investors private opportunity

Answer: C

8. One of the primary roles of a business plan is to raise finance.

  1. True
  2. False

Answer: A

9. The aim of most business angels and venture capitalist is not to achieve a personal gain for the founding team but to achieve a return of their investment.

  1. True
  2. False

Answer: A