, MNE3701
ASSIGNMENT 2 SEMESTER 2
2026
DUE 30 SEPTEMBER 2026
QUESTION 1:
A critical approach to funding a business requires moving beyond a simple binary choice between
debt and equity, instead constructing a tailored strategy that reflects the specific nature of the
venture, its growth stage, and the founder’s long-term vision. The decision is fundamentally shaped
by factors such as the business's size, its asset base, and its cash flow predictability, as research
indicates that firm-specific attributes and market conditions are key determinants in the choice of
financing sources (Brealey, Myers and Allen, 2020). For my hypothetical business, a
growth-oriented artisanal food production company, the optimal funding strategy would be a
phased approach, beginning with a blend of founder investment and non-dilutive, flexible debt
instruments, and only considering equity financing at a later stage if the capital requirements for
scaling become substantial.
The initial phase of funding would prioritise options that preserve ownership and control while
managing the inherent risks of a young business. A primary source would be a revenue-based
financing agreement, a model successfully utilised by organisations like Allies for Community
Business, which provides capital with repayment terms tied to a company's top-line revenue
(Gompers and Lerner, 2021). This structure is particularly attractive for a food business where cash
flow can be seasonal or unpredictable. Unlike a traditional term loan with fixed monthly payments
that can strain a growing business, revenue-based financing allows the repayment amount to ebb
and flow with sales, ensuring that during leaner months, the business retains more cash for
operations (Robb and Robinson, 2014). This justification is grounded in the fundamental advantage
of debt financing: retaining full ownership and avoiding the dilution that comes with selling equity
to investors (Berk and DeMarzo, 2020). However, because a traditional bank loan's rigid repayment
structure can be a burden for a business without a long, proven track record, the revenue-based
model offers a more sympathetic and flexible alternative that mitigates the risk of default during
early growth phases.
Furthermore, for the specific needs of purchasing equipment or securing a production facility, I
would explore microloans or specialised funds provided by community development financial
institutions (CDFIs) or government-backed schemes. As highlighted by studies on small business
financing, these lenders are often more accessible to small enterprises that do not meet the
stringent collateral requirements of traditional banks (Beck, Demirguc-Kunt and Martinez Peria,
2011). In a South African context, initiatives like the Tourism Equity Fund or the Basadi-Women
ASSIGNMENT 2 SEMESTER 2
2026
DUE 30 SEPTEMBER 2026
QUESTION 1:
A critical approach to funding a business requires moving beyond a simple binary choice between
debt and equity, instead constructing a tailored strategy that reflects the specific nature of the
venture, its growth stage, and the founder’s long-term vision. The decision is fundamentally shaped
by factors such as the business's size, its asset base, and its cash flow predictability, as research
indicates that firm-specific attributes and market conditions are key determinants in the choice of
financing sources (Brealey, Myers and Allen, 2020). For my hypothetical business, a
growth-oriented artisanal food production company, the optimal funding strategy would be a
phased approach, beginning with a blend of founder investment and non-dilutive, flexible debt
instruments, and only considering equity financing at a later stage if the capital requirements for
scaling become substantial.
The initial phase of funding would prioritise options that preserve ownership and control while
managing the inherent risks of a young business. A primary source would be a revenue-based
financing agreement, a model successfully utilised by organisations like Allies for Community
Business, which provides capital with repayment terms tied to a company's top-line revenue
(Gompers and Lerner, 2021). This structure is particularly attractive for a food business where cash
flow can be seasonal or unpredictable. Unlike a traditional term loan with fixed monthly payments
that can strain a growing business, revenue-based financing allows the repayment amount to ebb
and flow with sales, ensuring that during leaner months, the business retains more cash for
operations (Robb and Robinson, 2014). This justification is grounded in the fundamental advantage
of debt financing: retaining full ownership and avoiding the dilution that comes with selling equity
to investors (Berk and DeMarzo, 2020). However, because a traditional bank loan's rigid repayment
structure can be a burden for a business without a long, proven track record, the revenue-based
model offers a more sympathetic and flexible alternative that mitigates the risk of default during
early growth phases.
Furthermore, for the specific needs of purchasing equipment or securing a production facility, I
would explore microloans or specialised funds provided by community development financial
institutions (CDFIs) or government-backed schemes. As highlighted by studies on small business
financing, these lenders are often more accessible to small enterprises that do not meet the
stringent collateral requirements of traditional banks (Beck, Demirguc-Kunt and Martinez Peria,
2011). In a South African context, initiatives like the Tourism Equity Fund or the Basadi-Women
