Economic Development Finance Flashcards
1
Q
almost every aspect of implementing economic development projects or programs involves securing ____
A
financing
2
Q
business have different financing needs based on what ____
A
stage of the business cycle they’re in
3
Q
working capital focuses on the most _____
A
liquid assets used in the operation of an entity (cash, marketable securities, accounts receiveable, accounts payable, accruals, short-term loans, inventory, pre-paid expenses, etc.
4
Q
fixed assets are longer-lived assets like
A
plants, property, and equipment
5
Q
working capital is often used to meet short term debt obligations or debt due within
A
the next twelve months
6
Q
because working capital generally generates income almost immediately a business will typically use ______ financing to finance temporary increases in working capital
A
short term financing
7
Q
what are some examples of short term financing
A
short term bank loan, line of credit or trade credit
8
Q
most fixed asset investments are used to
A
expand or improve production capacity or efficiency or replace equipment
9
Q
fixed assets are normally financed with _____ because of how costly they are. They also don’t result in an immediate increase in sales sufficient to cover their costs
A
long-term loans (longer than 12 months)
10
Q
financing needs of most new businesses come in the form of _____
A
equity
11
Q
Does equity require immediate repayment?
A
No.
12
Q
equity fiancing provides a ______ on which debt can be leveraged
A
capital base
13
Q
trade credit is credit extended by an ____ It is often unavailable to new firms because there is not a strong relationship yet
A
entity’s suppliers
14
Q
For a VC to invest in a start-up, the expected retunr has to be___
A
high enough to offset the greater risk incurred
15
Q
Private sector commercial lenders don’t like to finance start-ups without some kind of ______ like those offered by the SBA
A
loan guarantee
16
Q
the conditions of private lenders on start-ups is often ___ for start-ups
A
too expensive
17
Q
banks negatively view high ______ as it increases the chances that the business will have difficulty meeting its regular debt payments
A
debt/equity
18
Q
small businesses face a ___ in private financing when trying to obtain long-term financing of fixed assets
A
gap
19
Q
many commercial banks don’t provide loans smaller than $___
A
100,000
20
Q
microloans are typically $____ or less
A
$25,000
21
Q
commercial banks are typically short to medium-term lenders which means
A
they don’t prefer to lend for periods of more than 10 years, often not more than 7; longer terms have prohibitive principal and interest
22
Q
insurance companies are long-term lenders but tend to limit their investments to projects over ____ in value
A
$1million
23
Q
firms with cyclical demand need extra cash to _____ when _____
A
finance the buildup of inventory in anticipation of future sales; actual sales are low
24
Q
for cyclical or seasonal demand, larger firms often have a ______
A
bank line of credit
25
interest rates and conditions on line of credit are
prohibitive
26
many banks won't offer lines of credit that are less than ____
$1 million
27
small, minority, and or new contractors often don't have the ______ to pay up front for expenses required to undertake a contract and finance the costs until full payment is received for services
line of credit
28
sharp sustained increases in sales create the need to _______ and create the need for short-term and _____ capital
ramp up production quickly; long term
29
many firms encounter problems with getting export financing because
banks are unfamiliar with international banking transactions, there is a perception of risk, there is potential for exchange rate losses during currency conversion, political instability in foreign markets
30
mature firms typically need lines of credit for___
replacing equipment or improving production
31
some of the challenges that mature firms might have around financing occur because
sales are declining but expenses are not
heavy investment in fixed assets make it hard to cut costs
facilities may be hard to sell because of their location or they have become obsolete
32
private sector financial institutions provide two forms of financial capital:
debt and equity
33
debt capital is capital that needs to be paid back on afixed schedule and can include
loans, bonds,
34
loans are
the transfer of capital between a borrower and a single lender
35
bonds are
sold to many investors
36
the most common type of debt is a
loan
37
in return for a lender's investment, ____ is charged
interest
38
interst charges are typically due within the following timeframes
the debt period
at the end of the debt period
in advance of the principal
39
list some debt sources
banks, mortgage companies, credit unions, pension funds, industrial revenue bonds, savings and loans
40
___, ____, and ____ are the most familiar sources of debt capital. they rely primarily on a businesses ability to pay and only secondarily on _____ offered as collateral
banks, credit unions, and savings and loan institutions; assets offered as collateral
41
in return for equity investment, investors receive ______ in the venture
partial ownership
42
equity investments are primarily in the form of ____, however any capital that an owner invests is considered equity
stocks
43
private sources of equity include
```
friends, associates, and relatives
venture capitalists
angel investors
public or private sale of common or preferred stock
private or corporate investors
```
44
public sector funding solutions are meant to ______ to ensure that access to capital is extended to entities that are credit-worthy but not considered good risks in traditional commercial terms
leverage private lenders and investors
45
the role of the public sector is to invest in ventures or projects where
the economic and social benefits outweigh the risk of financing
46
public lending assistance should not
offer services to clients that have access to and qualify for conventional financing in amounts adequate for their need
47
typical public sector financing goals and programs include
- lowering the cost of borrowing
- lowering risk
- provid investment programs
- package loans
- direct lending and financing
- offer technical assistance
48
lowering cost of borrowing =
public sector subsidizes the difference between the market and discounted interest rate, reducing what the borrower has to pay the lender
49
lowering risk =
public guarantees promise to assume responsibility for a % of an outstnading debt in the case of default
50
provide investment programs =
these address the needs of underserved groups with tools like start-up loans, small working capital loans, microloans, seed and venture capital, and export loans
51
package loans =
facilitate and coordinates the loan process
52
direct lending or investing =
```
act as a direct, subordinate, or primary lender through offering things like
federal grants
local revenue appropriations
investment portfolios
pension fund investments
```
53
technical assistance =
```
helps to improve the credit-worthiness of entities by teaching the fundamentals of running a business and focuses on the following:
financial administration
business or strategic planning
management assistance
marketing or selling strategies
product design and development
```
54
the main federal sources of financing are
Small Business Administraion
US Department of Agriculture
Dept. of Housing and Urban Development
55
the most common sources of state and local financing include
```
direct lending
revolving loans
microloans
state financing programs
federal financing programs
```
56
direct lending =
```
EDO acts as the lender using
federal or state grants
local revenue appropriations
investment portfolios
bond issues
pension funds and endowments
foundations
```
57
direct lending gives the EDO great flexinility in determing
termas, structure, and recipients
58
direct funding should only provide _____ or leverage private sector financing for projects that ______
gap; can't secure it on their own
59
revolving loan funds =
emerged in 1970s and the repayment of loans made is recycled into future lending. as loans are repaid the principal and interest return to a loan pool that can be lent to other businesses
60
RLFs typically offer ___
a lower rate and longer term
61
microloan/microcredit programs =
provide small loans to small business
62
the max microloan size is ____ but the average is _____
$35,000; $10,500
63
development authorities are
special state authorities that can assist firms with working capital needs
64
common development authority funding funding sources include
direct loans, loan guarantees, and equity invesments
65
states use three approaches to expand _____ supply
venture capital
66
the three approaches states use for VC are
1. directly invest in firms through state-controlled institutions
2. investing in privately managed funds to expand local VC
3. provide incentives through tax credits that increase private investment
67
the five sources of federal financing are
```
the SBA
HUD
USDA
Department of Treasury
US EDA
```
68
how can economic development organizations lower the cost of borrowing, lower the credit risk of a company, or increase access through different investment product?
by packaging loans, providing direct loans, or providing technical assistance
69
to lower the cost of borrowing, the public sector ____ between the market and the discounted rate, reducing interest rates that must be paid to the lender
subsidizes the difference
70
to lower the credit risk of a company, the public sector ____
guarantees a percentage of a private sector loan against default, making the investment more attractive to the lender
71
the public sector can establish lending programs that address the special needs of under-served groups that include
start-up loans, small working capital loans, microloans, seed and venture capital, export loans, and Small Business Investment Companies
72
as a loan packager, the EDO acts as a conduit:
facilitating and coordinating the loan process
73
in direct lending or investing situations, the EDO as the
direct, subordinate, or primary lender using its own funds or funds it controls
74
direct lending capital SOURCES include
federal or state grants
local revenue appropriations
investment portfolios
private sector investments like pension funds
75
direct investing gives the EDO more flexibility in determining loan
terms, structure and recipients
76
examples of direct lending programs include
revolving loan funds and seed and venture capital funds
77
direct financing programs should only provide ____ financing
gap
78
technical assistance generally focuses on
```
financial administration
business or strategic planning
management assistance
marketing/selling strategies
product design and development
```
79
economically targeted invesemtns direct funds to opportunities that earn _________ while producing ______
competitive financial returns; economic development benefits
80
common criteria used by banks to determine credit risk include
management ability
repayment ability
collateral
equity in business
81
banks look for a debt to equity ratio of
2 to 1 or less - $1 invested by owners for every $2 borrowed
82
current assets are the "___" meaning they can easily be converted into ___ to pay bills
"most liquid"; cash
83
current assets include
```
cash
cash equivalents (very liquid short term investments including money market funds)
accounts receivable
inventory
prepaid expenses like fire insurance
```
84
the quality of current assets gives an indication of the ability of a company to _____
meet its current obligations
85
accounts receivable =
amount of money owed to a company by its customers who have purchased good s and services
86
activity ratios measure
how well a company is using its assets
87
activity ratios include
accounts receivable turnover, days accounts recievable , inventory turnover ratio, days inventory
88
accounts receivable turnover is the number of times ____ are collected during the year
receivable
89
accounts receivable turnover equation
accounts receivable turnover = net sales/accounts receivable
90
days receivable measures the _____ it takes for a firm to collect its accounts receivable
average number of days
91
days receivable equation equation
days receivable = accounts receivable/sales x 360
92
inventory turnover ratio indicates the number of times per year the inventory is ____ or _____
sold; turns over
93
inventory turnover ratio equation
inventory turnover ratio = cost of good sold/inventory for period
94
Just in Time Inventory (JIT)
practice by which manufactures cut cost by ordering inventory so it arrives right before its used in the manufacturing cycle
95
average days inventory is a measure of the _____ it takes for a company to sell its inventory
average number of days
96
average days inventory equation
days inventory = inventory/cost of goods sold x 360
97
current liabilities are debts that come due within the same _____ as the current assets; 12 months
time period
98
current liabilities include
```
short term notes payable
accounts payable
accruals
income taxes payable
current portion of long-term debt
```
99
notes payable =
money borrowed for a bank or other lender on a short term basis like a line of credit
100
ACCOUNTS PAYABLE =
monies owed to suppliers for services and inventory
101
days payable measure the average length of time between ____ and payment for them
purchase of goods
102
days payable equation
days payable = account payable/cost of goods sold x 360
103
ACCRUALS are money owed to providers of goods and services for which NO____
official bill exists or billing process takes place
104
accruals include wages
payroll taxes
fringe benefits and pension funds deposit
rent
interest due on loans
105
liquidity ratios measure a firm's _____ ability to pay its ___ obligations
short-run; maturing
106
what are two measures to determine liquidity
current ratio
| quick ratio
107
current ratio is the most common measure of ____
short term credit
108
current ratio equation
current ratio = current assets/current liabilites
109
the higher the current ratio the more ___ the business
solvent
110
quick ratio is like current ratio but focuses on the most ___ of an entity's asstes
most liquid
111
quick ratio equation
quick ration = cash & accounts receivable/current liabilites
112
quick ratio should be at least
1:1
113
operating cycle can be defined by the amount of hard cash that a company has tied up in ____
operating assets
114
operating cycle (cash conversion cycle) equation
CCC = days accounts receivable + days inventory - days accounts payable
115
working capital measures how much in liquid assets a company has available to ____ its business
build
116
working capital equation
working capital = current assets - current liabilites
117
working capital ratio gives an indication of the ___ of working capital
turnover
118
working capital ratio equation
working cap ratio = net sales/working capital
