RONSAM
TUTORS
MNE3701 ASSIGNMENT 03 DUE 27
SEPTEMBER 2024
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, QUESTION 1
With reference to practical examples, critically discuss how you would finance
your business. Motivate why you choose specific ways of financing over
others. (10)
My chosen business is a salon business, I will consider the following financing
options:
To finance my salon business in the South African context, I would choose
government-backed loans and grants, particularly through the National Youth
Development Agency (NYDA) and the Small Enterprise Finance Agency (SEFA).
These agencies offer grants, loans, and other forms of support tailored to small
businesses.
One of the biggest advantages of opting for NYDA and SEFA loans is the low-
interest rates compared to commercial banks. In South Africa, high-interest rates
from commercial loans can overwhelm new businesses with heavy repayment
burdens. Government loans, however, are designed to support young entrepreneurs
by offering below-market interest rates and flexible repayment terms, making it
easier to start a salon without the pressure of hefty monthly repayments.
Both agencies also offer grants, especially for youth-owned businesses. Unlike
loans, grants do not need to be repaid, which significantly reduces the financial risk
involved in starting a business. For example, NYDA offers grants of up to R200,000,
which could be used to purchase critical salon equipment such as chairs, dryers, and
beauty products. This provides a solid financial foundation without the stress of debt.
(Guide to NYDA Funding,2024).
Beyond financing, both NYDA and SEFA provide access to business mentorship,
training, and networking opportunities. This is a critical advantage over traditional
bank loans, as young entrepreneurs often need more than just money to succeed.
The mentorship and business development services offered by these agencies are
particularly valuable for navigating the challenges of running a new business in the
competitive beauty industry.
While commercial bank loans are another option, they generally come with higher
interest rates and rigid repayment schedules. For example, a salon owner taking out
a loan from a bank like Standard Bank would face regular repayments regardless of
the salon’s cash flow. This can be a significant burden during the early stages of the
