SBA Financial Management & Funding Resources 3 — Questions and Answers
Question 1: Under the SBA 504 loan program, what is the typical structure of the financing arrangement?
- SBA provides 100% of financing at a fixed rate
- Bank provides 50%, CDC/SBA provides 40%, borrower contributes 10% (Correct answer)
- Bank provides 70%, SBA guarantees 30% with no down payment
- CDC provides 60%, borrower contributes 40%
Correct answer: Bank provides 50%, CDC/SBA provides 40%, borrower contributes 10%
The typical 504 structure is: a private lender covers 50%, a CDC (backed by an SBA debenture) covers 40%, and the small business contributes 10% as a down payment.
Question 2: Which type of financial analysis compares each line item on a financial statement as a percentage of a base figure (e.g., total revenue)?
- Horizontal analysis
- Trend analysis
- Vertical analysis (Correct answer)
- Ratio analysis
Correct answer: Vertical analysis
Vertical analysis expresses each financial statement item as a percentage of a base figure, such as expressing all income statement items as a percentage of total revenue.
Question 3: What is the SBA's primary role in the 7(a) loan program?
- The SBA directly lends money to small businesses
- The SBA guarantees a portion of loans made by approved lenders (Correct answer)
- The SBA co-signs loans alongside the business owner
- The SBA purchases loans from banks after origination
Correct answer: The SBA guarantees a portion of loans made by approved lenders
In the 7(a) program, the SBA does not lend directly but instead guarantees a portion (up to 85%) of loans made by SBA-approved private lenders, reducing lender risk.
Question 4: Which of the following is NOT a typical use of proceeds for an SBA 7(a) loan?
- Working capital
- Equipment purchase
- Real estate acquisition
- Paying personal income taxes of the business owner (Correct answer)
Correct answer: Paying personal income taxes of the business owner
SBA 7(a) loans cannot be used to pay personal expenses, including the owner's income taxes; funds must be used for legitimate business purposes.
Question 5: In the context of SBA lending, what does 'collateral' primarily serve to protect?
- The borrower's personal assets from seizure
- The lender in case the borrower defaults on the loan (Correct answer)
- The SBA's guarantee against fraudulent claims
- The business's credit score during repayment
Correct answer: The lender in case the borrower defaults on the loan
Collateral provides the lender with a secondary source of repayment if the borrower defaults, reducing the lender's financial risk on the loan.
Question 6: Which SBA resource provides free, confidential business mentoring and advice through a network of volunteer expert business mentors?
- SBA Small Business Development Centers (SBDCs)
- SCORE (Correct answer)
- Women's Business Centers (WBCs)
- Veterans Business Outreach Centers (VBOCs)
Correct answer: SCORE
SCORE is a nonprofit association supported by the SBA that provides free business mentoring and education through a nationwide network of volunteer business mentors.
Question 7: What financial metric is calculated by dividing net income by total revenue and expressed as a percentage?
- Gross profit margin
- Net profit margin (Correct answer)
- Return on assets
- Operating profit margin
Correct answer: Net profit margin
Net profit margin = (Net Income ÷ Total Revenue) × 100, showing what percentage of revenue translates into profit after all expenses.
SBA Financial Management & Funding Resources 3
Under the SBA 504 loan program, what is the typical structure of the financing arrangement?