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Flashcards in Sources of finance/ debt finance Deck (13)
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1
Q

What percent of start ups are financed internally and externally?

A

Internally = 85%, externally = 13%

2
Q

Who investigated 160 start ups to find the percentage of internal/ external financing?

A

Fraser (2009)

3
Q

What is agency theory?

A

The process of the bank ensuring that loan and interest payments are paid by the business on time

4
Q

What will the bank ensure as a result of knowing that small businesses are of a higher-failure risk?

A

Get to front of creditor queue, charge higher interest, seek collaterals (e.g owners house)

5
Q

What are the four signals of a small business being ‘creditworthy’

A

Relationship factor (using existing lenders), information (formal planning), collaterals (house/ other assets), entrepreneurial talent (experience/ skills)

6
Q

What occurs (5 regularities) as a result of the entrepreneurial financial market being opaque? i.e what does the bank do as a result of not knowing 100% that a the business/ investment will be a success

A

Credit constraints, discrimination, higher interest rates, collaterals/ assets, strict loan terms

7
Q

Give examples of internal finance

A

savings, family loans, family gifts, credit cards

8
Q

Give examples of external finance

A

formal and informal VC, term loans, overdrafts, asset finance (hire purchase + leasing)

9
Q

Costs of agency?

A

Drawing up and managing a contract, setting performance standards

10
Q

Issues with collaterals?

A

Setting value of assets, actually gaining the assets when the business has failed (bailiffs)

11
Q

Which country has strong evidence for discrimination against black people when obtaining loans? And by how much more are they denied?

A

USA. Almost double are denied credit in comparison to white people (Cavalluzzo and Walken, 2005)

12
Q

What else could banks discriminate against?

A

Women, age

13
Q

Why is the entrepreneurial market more opaque than the corporate finance market?

A

Start ups are usually sole traders/ partnerships and so don’t have to publish accounts etc.