Financial Management & Funding Resources Flashcards

What is the purpose of a personal financial statement in an SBA loan application?

Answer: To demonstrate the owner's personal net worth and ability to guarantee the loan

Lenders require personal financial statements to assess the owner's personal net worth, assets, and liabilities, which are relevant because SBA loans typically require a personal guarantee.

Which of the following best describes 'accounts receivable' on a business balance sheet?

Answer: Money owed TO the business by customers for goods or services delivered

Accounts receivable represents money owed to the business by customers who have received goods or services but have not yet paid, classified as a current asset.

In SBA lending, what is a 'personal guarantee'?

Answer: The owner's legal commitment to repay the loan from personal assets if the business cannot

A personal guarantee is a legal agreement in which the business owner personally commits to repay the loan using personal assets if the business defaults, removing the corporate liability shield.

What does the term 'amortization' refer to in the context of a business loan?

Answer: Gradually paying off a loan through scheduled principal and interest payments

Loan amortization is the process of paying down a loan balance through regular scheduled payments that cover both principal and interest over the loan's term.

Which SBA program specifically provides financial assistance to businesses owned and controlled by socially and economically disadvantaged individuals?

Answer: SBA 8(a) Business Development Program

The SBA 8(a) Business Development Program helps eligible socially and economically disadvantaged small businesses compete for federal contracting opportunities and access business development assistance.

A business owner is evaluating whether to take on additional debt. Which financial ratio would BEST indicate whether the business is already heavily leveraged?

Answer: Debt-to-equity ratio

The debt-to-equity ratio (Total Debt ÷ Total Equity) measures financial leverage; a high ratio indicates the business relies heavily on borrowed funds relative to owner investment.

What is the key characteristic of a 'revolving line of credit' compared to a term loan?

Answer: It allows the borrower to draw, repay, and re-borrow funds up to a set credit limit

A revolving line of credit gives businesses flexible access to funds up to a set limit — they can borrow, repay, and borrow again as needed, making it ideal for managing cash flow fluctuations.