Sometimes Small Businesses Have to Use Debt Financing Instead of Equity

question 105

Multiple Choice

Sometimes small businesses have to use debt financing instead of equity financing.When they do,they discover that:

• A)banks give them a lower interest rate because of their closeness to the customer and better management practices.
• B)finance companies are their primary source for debt funding.
• C)the cost of debt financing is often less than the cost of equity financing.
• D)there are fewer lenders than investors in the marketplace,but the money is easier to get from lenders.

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Definitions:

Agreement

A mutual arrangement, typically in writing, between two or more parties detailing the terms and conditions of a deal or partnership.

Conditional Sale Contract

An agreement to sell an asset where the full payment is due after certain conditions have been met.

Simple Interest

Interest calculated on the principal amount of a loan or deposit, without compounding over time.

Finance Company

A business that provides loans to individuals and commercial customers that may not be able to secure financing through traditional banking channels.