A study has found that new ventures that are funded through bank loans

Question

A study has found that new ventures that are funded through bank loans are more likely to succeed than those funded by an entrepreneur’s friends and relatives. The reason for this is not difficult to fathom. The obligation to pay a fixed instalment to the bank every month prevents the entrepreneur from getting complacent and increases his motivation to succeed.

Which of the following raises the strongest doubt on the finding of the above study?

(A) Banks only fund those business ventures that have a very high probability of succeeding.

(B) The study also showed that some ventures that had been funded by an entrepreneur’s friends and relatives were extremely successful.

(C) Most entrepreneurs agree that the pressure of repaying the bank loans acts as a positive stimulus for them.

(D) It is an accepted fact that only those entrepreneurs opt for bank funding who are unable to generate funds from personal sources.

(E) According to a different study, there is a strong correlation between an entrepreneur’s educational background and the nature of his business venture.

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paragw · Answer

The key point of the study is that ventures funded through bank loans are more likely to succeed because the fixed monthly repayment motivates entrepreneurs to avoid complacency. To raise the strongest doubt on this finding, one should challenge the premise that the motivation from loan repayment is the main reason for success.

Let's analyze the options:

(A) "Banks only fund those business ventures that have a very high probability of succeeding." 
- This option raises doubt by suggesting a selection bias: banks may lend only to ventures that are already likely to succeed, so the observed success may be due to initial venture quality, not the motivation from repayment.

(B) "The study also showed that some ventures that had been funded by an entrepreneur’s friends and relatives were extremely successful." 
- This does not strongly doubt the finding; success in some ventures funded by friends and relatives does not negate the general trend.

(C) "Most entrepreneurs agree that the pressure of repaying the bank loans acts as a positive stimulus for them." 
- This supports the study’s finding rather than doubting it.

(D) "It is an accepted fact that only those entrepreneurs opt for bank funding who are unable to generate funds from personal sources." 
- This suggests a difference in entrepreneur characteristics, but it does not directly challenge the motivation argument.

(E) "According to a different study, there is a strong correlation between an entrepreneur’s educational background and the nature of his business venture." 
- This is unrelated to the motivation or source of funding and does not raise direct doubts about the study's finding.

The strongest doubt is raised by (A), as it points out a selection bias where banks fund ventures already more likely to succeed, making the motivation factor secondary.

Answer:  (A)

pappal · Answer

A- perfectly opposes the conclusion by reversing the cause effect relation.  CORRECT 
B-talks about some, conditional.
C-supports the conclusion
D-speaks nothing about success
E-out of scope

Dereno · Answer

A comparison is made with the entrepreneurial loans funded by banks vs friends and relatives. The loans funded by banks succeed a lot compared to loans funded by friends and relatives. They say that, the obligation to pay is the main factor behind such success in loans funded by banks.

We need to find the statement which raises the maximum doubt:

(A) Banks only fund those business ventures that have a very high probability of succeeding.

If banks fund ONLY those businesses which are capable of repaying their loans, then it’s highly likely that their success rates are higher. Hence, this casts the doubt on the comparison made.

(B) The study also showed that some ventures that had been funded by an entrepreneur’s friends and relatives were extremely successful.

The use of the phrase “ some” mentions that only some funded by relatives and friends are extremely successful. Which may be or may not be greater than the loans funded by banks. Hence, wrong.

(C) Most entrepreneurs agree that the pressure of repaying the bank loans acts as a positive stimulus for them.

The pressure to repay loans from banks cannot be considered higher or lower compared to the pressure to repay loans and keep up the words given to friends and relatives. Hence, wrong.

(D) It is an accepted fact that only those entrepreneurs opt for bank funding who are unable to generate funds from personal sources.

option D doesn’t challenge the funding ,but the ability to repay. Which is different from the question stem. Hence, wrong .

(E) According to a different study, there is a strong correlation between an entrepreneur’s educational background and the nature of his business venture.

This correlation is irrelevant to the question stem. Hence, wrong.

Option A

Bunuel · Answer

Official Explanation

It’s best to summarize cause and effect arguments in the form of a cause and an effect.

The Cause:  Funding through bank loans.

The Effect:  A high probability of success for a new venture.

As we saw earlier, there are two ways of weakening cause and effect arguments—either provide some other cause for the same effect or reverse the cause and the effect.

Option A reverses the cause and effect in the argument and is the correct answer. This option states that the cause was the business venture’s high probability of success and the effect was funding provided by the bank. Had the bank felt that the venture may not succeed, it would not have funded the venture in the first place. So, it is not because of the bank funding that the venture succeeded but because the venture was going to succeed that the bank funded it.

Let’s look at the other options for clarity:

(A) The correct answer.

(B) The use of the word some does not tell you anything. Some ventures were successful and some were not. Had the option stated that most such ventures are very successful then it could have negated the argument (but this won’t be the case because then the argument would be questioning the evidence itself, which can never happen).

(C) This option actually strengthens the argument.

(D) Under what conditions an entrepreneur opts for bank funding is of no consequence to the argument.

(E) The nature of the entrepreneur’s business venture is of no consequence to the argument.

A study has found that new ventures that are funded through bank loans

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GMAT Critical Reasoning (CR) Questions

A study has found that new ventures that are funded through bank loans

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