Types of Business Loans
Which loan type allows a business to borrow up to a set limit and pay interest only on the amount used?
A. Term Loan
B. Line of Credit
C. Mortgage Loan
D. Equipment Lease
B. Line of Credit
Which factor directly increases total interest paid over time?
A. Shorter loan term
B. Lower principal
C. Longer loan term
D. Lower interest rate
C. Longer loan term
Business loan interest is typically:
A. Not deductible
B. Deductible as a business expense
C. A capital gain
D. Personal income
B. Deductible as a business expense
Closing the office for two weeks during renovation primarily impacts:
A. Rent expense
B. Loan principal
C. Revenue
D. Equipment cost
C. Revenue
Which variable most directly affects monthly payment size?
A. Paint color
B. Principal amount
C. Office logo
D. Staff uniforms
B. Principal amount
A traditional term loan is best described as:
A. Revolving credit with no fixed end date
B. Interest-only debt
C. A fixed amount borrowed and repaid over a set period
D. A loan with no repayment schedule
C. A fixed amount borrowed and repaid over a set period
If interest rates rise on a variable loan, what happens to monthly payments?
A. They decrease
B. They stay the same
C. They increase
D. They disappear
C. They increase
Loan principal repayment is:
A. Tax deductible
B. Partially deductible
C. Not deductible
D. Always refundable
C. Not deductible
The greatest risk in adding a new operatory is:
A. Buying new chairs
B. Underutilization of the operatory
C. Tax deductions
D. Fixed interest rates
B. Underutilization of the operatory
Increasing the interest rate will generally:
A. Lower payments
B. Increase payments
C. Eliminate debt
D. Reduce principal
B. Increase payments
Which loan typically carries more payment predictability?
A. Variable Line of Credit
B. Fixed-Rate Term Loan
C. Credit Card Financing
D. Balloon Loan
B. Fixed-Rate Term Loan
Prime + 3% means:
A. The interest rate is fixed at 3%
B. The rate changes when prime changes
C. Prime is reduced by 3%
D. The rate is tax free
B. The rate changes when prime changes
If you are in a 30% tax bracket and pay 8% interest, your after-tax cost is approximately:
A. 8%
B. 5.6%
C. 2.4%
D. 10%
B. 5.6%
Cash flow is best defined as:
A. Total production
B. Revenue minus expenses over time
C. Number of patients
D. Equipment value
B. Revenue minus expenses over time
A $60,000 loan over 3 years will have higher monthly payments than over 7 years because:
A. The principal changes
B. The term is shorter
C. Taxes increase
D. The bank requires it
B. The term is shorter
Equipment financing is most commonly categorized as:
A. Short-term working capital
B. Consumer debt
C. Asset-backed financing
D. Equity financing
C. Asset-backed financing
Extending the loan term typically results in:
A. Higher monthly payments
B. Lower total interest paid
C. Lower monthly payments but higher total interest
D. No change in payment
C. Lower monthly payments but higher total interest
Depreciation of purchased equipment provides:
A. Immediate full cash refund
B. A tax deduction over time
C. Higher loan payments
D. No financial benefit
B. A tax deduction over time
Bankers focus most heavily on which factor before lending?
A. Office paint color
B. Dentist’s personality
C. Ability to repay through cash flow
D. Number of operatories
C. Ability to repay through cash flow
Which is an example of matching debt to asset life?
A. 1-year loan for 10-year equipment
B. 10-year loan for 3-year equipment
C. 3-year loan for 3-year equipment
D. Credit card for building purchase
C. 3-year loan for 3-year equipment
A major risk of using a variable-rate line of credit is:
A. Fixed payment structure
B. Early payoff penalties
C. Payment increases if interest rates rise
D. No tax deduction
C. Payment increases if interest rates rise
Which scenario represents the greatest interest-rate risk?
A. 3-year fixed loan
B. 10-year fixed loan
C. Prime + 3% variable rate during inflation
D. Cash purchase
C. Prime + 3% variable rate during inflation
Tax deductibility of interest means:
A. The loan is free
B. You still must manage cash flow carefully
C. Principal becomes deductible
D. The IRS pays the loan
B. You still must manage cash flow carefully
A debt-financed expansion is safest when:
A. Demand is uncertain
B. Cash flow projections support repayment
C. Interest rates are rising rapidly
D. The practice is losing money
B. Cash flow projections support repayment
The most important driver in deciding to expand is:
A. Equipment aesthetics
B. Patient growth and production projections
C. Bank advertising
D. Staff preference
B. Patient growth and production projections