Secured vs Unsecured Debt and Debt Financing Quiz

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What is the main difference between bonds and other debt financing instruments?

The company specifies the interest rate and maturity date for bonds.

What is the price paid for a bond at the time it is issued called?

Face value

How does issuing a bond help a company in terms of financing?

It allows the company to access funds without immediate repayment.

What risk do investors face when investing in bonds?

The risk of the company defaulting or going bankrupt before the maturity date. Signup and view all the answers

How do bonds rank in terms of claim on company assets compared to equity holders?

Bonds are ahead of equity holders for company assets. Signup and view all the answers

What is a lease in the context of obtaining assets for a business?

A lease is a method of obtaining asset use without debt or equity financing. Signup and view all the answers

What is the main difference between secured debt and unsecured debt?

Secured debt has collateral, while unsecured debt does not have collateral. Signup and view all the answers

When is short-term debt typically used?

Short-term debt is used to finance current activities such as operations. Signup and view all the answers

What should start-up businesses borrowing from friends and relatives do to maintain formality?

Start-up businesses should create and execute a formal loan document. Signup and view all the answers

What do banks and other commercial lenders usually require from businesses seeking financing?

Banks and other commercial lenders usually require a solid business plan, positive track record, and collateral. Signup and view all the answers

Why is having collateral important for lenders in debt financing?

Collateral provides security for lenders in case of borrower default. Signup and view all the answers

What type of debt is typically used to finance assets like buildings and equipment?

Long-term debt is used to finance assets like buildings and equipment. Signup and view all the answers

What type of financing may be considered when a business is unable to secure financing from other commercial sources?

Commercial finance companies Signup and view all the answers

Why might a commercial finance company be less concerned about the track record or profit projections of a business?

They rely more on the quality of collateral for repayment Signup and view all the answers

When might a commercial finance company not be the best place to secure financing?

When the business lacks substantial personal assets or collateral Signup and view all the answers

What is the main drawback of borrowing from a commercial finance company compared to other commercial lenders?

Higher cost of finance Signup and view all the answers

What type of government programs assist in financing new ventures and small businesses?

Federal, state, and local government programs Signup and view all the answers

What is the purpose of a government guarantee in financing for new ventures?

To provide repayment assurance to lenders Signup and view all the answers

Secured vs Unsecured Debt and Debt Financing Quiz

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