Your Friend, Shonta, Started a Graphic Design Firm About a Year

question 125

Multiple Choice

Your friend, Shonta, started a graphic design firm about a year ago.The business has done well, but it needs a lot more equipment, computers, and employees to continue expanding.Shonta does not see any problem because she thinks she can easily get all the money she will need from her local bank.What advice might you give her?

• A) She is right-the bank is likely to lend her as much as she needs because banks primarily focus on supporting small businesses.
• B) She is crazy-banks do not lend money to small businesses but only to well- known, well-established organizations.
• C) She should sell her business immediately before it fails because most small businesses fail during the first five years.
• D) She should not accept any new clients so that she can end the need to add additional equipment and employees.
• E) She should consider alternative sources of financing because banks provide only about one-fourth of the total capital to small businesses.

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Definitions:

Time Preference

The economic principle that people prefer to receive goods or services sooner rather than later, reflecting the relative valuation placed on immediate versus future consumption.

Loanable Funds

The money available for borrowing in the financial markets, derived from savings and supplied to borrowers at an interest.

SEC

The Securities and Exchange Commission, a U.S. federal agency responsible for regulating the securities industry, ensuring market integrity, and protecting investors.

Investor Losses

The decrease in monetary value that investors experience in their investment portfolio due to market movements or poor investment decisions.