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Question 1

What is the primary purpose of the SBA 7(a) loan program in the United States?

Accepted Answer

To offer government-backed loans to small businesses that may not qualify for conventional financing

Answer

The SBA 7(a) program guarantees a portion of loans made by approved lenders to small businesses that lack collateral or credit history for conventional loans.

Question 2

What is a business line of credit?

Accepted Answer

A revolving credit facility allowing businesses to borrow up to a set limit as needed

Answer

A business line of credit is a revolving facility where the business can draw funds up to a maximum limit, repay them, and draw again as needed.

Question 3

Which financial statement do lenders most closely analyze to assess a business's ability to service debt?

Accepted Answer

Cash flow statement and income statement

Answer

Lenders analyze cash flow statements and income statements to determine whether the business generates sufficient revenue to cover debt service obligations.

Question 4

What is a Debt Service Coverage Ratio (DSCR) of 1.25 indicating for a business loan applicant?

Accepted Answer

The business generates $1.25 in net operating income for every $1.00 of debt service

Answer

A DSCR of 1.25 means the business earns $1.25 in net operating income for each $1.00 of required debt payments, indicating a comfortable buffer for repayment.

Question 5

What is invoice financing (accounts receivable financing)?

Accepted Answer

A form of short-term borrowing where outstanding invoices are used as collateral

Answer

Invoice financing allows businesses to borrow against outstanding accounts receivable, providing immediate cash flow while waiting for customers to pay.

Loans Practice Test

Loans Practice Test

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