MGT602 Final Term Subjective Set 2

2010 Question

MGT602 final term subjective

Q1. Loan application is called mini business plan, comment on this statement?(3)

ANS PG85

The loan application format is generally a "mini" business plan. a. This provides the loan officer with information on the creditworthiness of the individual and the ability of the venture to repay the loan. b. Presenting a positive business image and following procedure are important in obtaining the funds.

Q2. How can entrepreneur motivate and lead the team?(3)

ANS PG96

MOTIVATING AND LEADING THE TEAM

 The entrepreneur will usually be a role model for any other employees.  It is important that the founder assume the role of leader to the management team and employees.  Communication with managers and employees is one of the most important leadership qualities.

Q3. In which circumstances entrepreneur go to SBA for loan?(5)

ANS PG 85

A. When an entrepreneur is unable to secure a regular commercial bank loan, an alternative is a Small Business Administration (SBA) Guaranty Loan.

1. The SBA guarantees that 80% of the loan will be repaid to the bank by the SBA if the company can’t pay.
2. This allows the bank to make loans that have higher risks.

Q3. This procedure is the same as for securing a bank loan, except that government forms and documentation are required.

1. Both long and short-term loans can be guaranteed by the SBA.

1. A maximum loan period of 15 years on existing buildings and 20 years on new con-struction can be obtained.
2. For inventory, equipment, or working capital, a maximum of 10 years is available, although five years is the usual.
3. Once the application has been filled out, it usually is processed within 15 days.
4. There are additional reporting requirements beyond those for a conventional bank loan.
5. Since there is no difference in interest rates charged between conventional bank loans and SBA-guaranteed loans, a commercial bank loan is usually better.

Q6. A good banking relationship is very valuable as the venture grows.

1. For most SBA loans, there is no limit to the amount of loan money requested, but there is practical limit of $1 million.

1 The vast majority of small businesses are eligible for financial assistance from the SBA.

1. As defined by the Small Business Act, a small business is independently owned and operated and not dominant in its field of operation.
2. The size limits of a small business vary from industry to industry.
3. The proceeds of the loans can be used for almost any business purpose.
4. The interest rates are negotiated between the entrepreneur and the bank, but there are subject to SBA maximums.

Q4. In which ways the law is flexible for S type corporation?(5)

ANS PG 72

The S Corporation combines the tax advantages of the partnership and the corporation.

1. It is designed so that the venture income is declared as personal income on a pro rata basis.
2. Shareholders benefit from all of the income and the deductions of the business.

Prior to passage of the 1996 Small Business Protection Act, rules governing the S corporation were considered too rigid. The new law provides more flexibility with regard to: a. Number of shareholders. b. Who can be allowed to own shares? c. The role of trusts as stockholders. d. The ability of S corporations to own more than 90 percent of stock of another corporation.

Q5. How can entrepreneur mange the coast and profit , under consideration of Interim income statement?3marks

ANS PG 99

month

Q6. How should the entrepreneur take the interview from employees. (3)

ANS PG96

The interview

 The interviewer should ask all of his or her questions at the beginning of the interview.  It allows the interviewer to evaluate the candidate’s behavior.

 It avoids talking too much and not listening.  Upon completion of the interview, the firm should be sure to check all of the candidate’s references.

Q7. Which type of loans the bank will issue if entrepreneur has creditworthy customers. (3)

ANS PG83

Accounts receivable loans. Accounts receivable provide a good basis for a loan, especially if the customer base is creditworthy. A bank may finance up to 80% of the value of the accounts receivable. A factoring arrangement can be developed whereby the factor (bank) actually buys the accounts and collects the money. If any of the receivables are not collectible, the factor sustains the loss, not the business. The cost of factoring is higher than the cost of securing a loan against the accounts receivable.

Q8. It is said that advertising agencies are meant for the promotional tools. Why do you think that it is a correct statement? (5)

ANS PG102

Yes advertising agencies are meant for the promotional tools  Advertising agencies can provide many promotional services.  It is an independent business organization composed of creative and business people  The agency can provide assistance in marketing research.  It is important to determine whether the agency can fulfill all of the needs of the new venture.  A checklist of items that the entrepreneur may consider in evaluating an agency is useful.  The agency should support the marketing program and assist the entrepreneur in getting the product effectively launched