MNE3701 ASSIGNMENT 2 2026
DUE 30 SEPTEMBER 2026
I am founding PureEssence Naturals, a Johannesburg-based micro-enterprise
producing and selling organic body butters, carrier oils and natural skincare products
targeted at urban middle-income consumers seeking chemical-free alternatives. Initial
capital requirement is estimated at R450 000 for equipment, initial inventory, packaging,
working capital and modest marketing. The business starts as a sole proprietorship with
plans to convert to a private company once scale is achieved.
Question 1: Using real-world examples, critically explain how you would fund your
business. Justify why you would select certain financing options rather than
alternative ones.
Funding decisions for a small start-up in South Africa are shaped by the firm’s economic
potential, size and maturity, asset base, and the owner’s preference for control versus
risk (Longenecker et al., 2017; Study Guide LU7). PureEssence Naturals will use a
staged mix of internal equity, informal debt and selective external equity rather than
relying solely on formal bank debt.
, Stage 1 Bootstrapping and close-to-home sources (R180 000–R220 000)
I will invest personal savings of approximately R150 000 (owner’s equity). This is the
most common and preferred first source for start-ups because it signals commitment to
lenders and investors and avoids immediate interest or dilution (Study Guide 7.3.1;
Longenecker et al., 2017). A soft loan of R50 000–R70 000 from family will be structured
as informal debt with a clear repayment schedule and modest interest. Friends-and-
family finance is convenient and quick, but carries relational risk; formalising the
agreement mitigates this.
Stage 2 Spontaneous and asset-based financing
Trade credit from packaging and ingredient suppliers (30–60 day terms) will finance a
portion of inventory. Equipment will be leased rather than purchased outright where
possible. These spontaneous and asset-based forms free cash for operations and
reduce the need for large up-front capital (Study Guide 7.3.3).
Stage 3 Selective external equity or development finance
Once proof of concept and early sales are demonstrated, I will approach a business
angel or Business Partners (formerly SBDC) for R200 000–R250 000 in equity or quasi-
equity. Business angels provide both capital and mentoring; government-linked agencies
such as Business Partners or Khula-type guarantees reduce collateral barriers that
commercial banks impose on start-ups lacking fixed assets (Study Guide 7.3.4–7.3.5).
Pure bank term loans or overdrafts are unattractive at start-up because South African
banks prioritise the five Cs of credit (character, capacity, capital, collateral, conditions)
DUE 30 SEPTEMBER 2026
I am founding PureEssence Naturals, a Johannesburg-based micro-enterprise
producing and selling organic body butters, carrier oils and natural skincare products
targeted at urban middle-income consumers seeking chemical-free alternatives. Initial
capital requirement is estimated at R450 000 for equipment, initial inventory, packaging,
working capital and modest marketing. The business starts as a sole proprietorship with
plans to convert to a private company once scale is achieved.
Question 1: Using real-world examples, critically explain how you would fund your
business. Justify why you would select certain financing options rather than
alternative ones.
Funding decisions for a small start-up in South Africa are shaped by the firm’s economic
potential, size and maturity, asset base, and the owner’s preference for control versus
risk (Longenecker et al., 2017; Study Guide LU7). PureEssence Naturals will use a
staged mix of internal equity, informal debt and selective external equity rather than
relying solely on formal bank debt.
, Stage 1 Bootstrapping and close-to-home sources (R180 000–R220 000)
I will invest personal savings of approximately R150 000 (owner’s equity). This is the
most common and preferred first source for start-ups because it signals commitment to
lenders and investors and avoids immediate interest or dilution (Study Guide 7.3.1;
Longenecker et al., 2017). A soft loan of R50 000–R70 000 from family will be structured
as informal debt with a clear repayment schedule and modest interest. Friends-and-
family finance is convenient and quick, but carries relational risk; formalising the
agreement mitigates this.
Stage 2 Spontaneous and asset-based financing
Trade credit from packaging and ingredient suppliers (30–60 day terms) will finance a
portion of inventory. Equipment will be leased rather than purchased outright where
possible. These spontaneous and asset-based forms free cash for operations and
reduce the need for large up-front capital (Study Guide 7.3.3).
Stage 3 Selective external equity or development finance
Once proof of concept and early sales are demonstrated, I will approach a business
angel or Business Partners (formerly SBDC) for R200 000–R250 000 in equity or quasi-
equity. Business angels provide both capital and mentoring; government-linked agencies
such as Business Partners or Khula-type guarantees reduce collateral barriers that
commercial banks impose on start-ups lacking fixed assets (Study Guide 7.3.4–7.3.5).
Pure bank term loans or overdrafts are unattractive at start-up because South African
banks prioritise the five Cs of credit (character, capacity, capital, collateral, conditions)
