These are those resources which are available externally from the individual or from any company. These sources are generated from external / outside of the organization. There are many types of external sources which are enlisted here under:-
(1) Banks. In today world, banks are putting the funds into the company in the shape of investments, mutual funds, loans etc. As the major public money holding is the banks who have public money at huge extent. In order to utilize that money and giving profits to the general public, banks have now been the major investment institution for the companies who injects surplus funds for carrying out the businesses.
(2) Loans. Loan is term as borrowed money either from bank any investment institute or from any sister company or from relative. The loan is required to be paid back along with the monthly or annually interest. Normally the banks / financial institution lend money so that they can generate their monthly income by keeping their investment money safe.
(3) Government Loans / Grants. It is another external source of finance for the companies who are doing business for public interest. Normally government loans / grants are given to the registered NGO’s or companies doing welfare projects. This also includes the relaxation in taxation from the government like for example for the companies doing business in solar energy generation. They are getting major tax benefits.
(4) Shares. The public limited companies which are allowed to get money from the general public, they get money by giving the shares of the company. Through this, a person who puts money into the company by purchasing the shares, he becomes share holder of the company. This way of generating finances is most common, successful & less risky for any kind of business because the management will pay profit only if the business is making the profit whereas interest is being paid on loan even if the company is on losses.
(5) Debentures. This is another form of generating finance source externally through general public. As from banks loan banking institutions decides the interest rate / whereas debentures are issued by the company on their own rate. Debentures is also same like shares but have the buyer does not becomes share holder but he lends money like a bank and gets the interest (at a fixed rate specified by the company) on monthly basis. The company is bound to pay the principal amount at the time of redemption of the debentures along with the monthly / annually interest.
(6) Bonds. These are issued by a government or by the company. Government issues the bond to manage the money flow in the market. Issuance of bonds is the most successful way of reducing supply of money as well as generating funds for the government. Companies issues bond just to raise their capital and their cost of raising capital is also within their budget.
(7) Preferred Stocks. The stock that is issued by the company having preference as compared to other stock and higher dividend rate is termed as preferred stock. These stocks are not issued to the general public rather these are issued to the individual who the company wants to give preference for their work with the company. Mostly preferred stock is issued to directors as remuneration for their work within the company. This preferred stock is lower in price and at the time of dividend declaration, people who are having the preference stock get the dividend first before others.
(8) Hire Purchase / Leasing. This is another source of generating finance through which the asset is got by the company on rental basis (leasing) or through hire purchase system like car financing. Instead of buying a car (Asset) on cash, company gets the same by paying the down payment and installments from monthly revenue and after completion of installments assets is shown in the books of accounts as owned by the company. In this way company’s own cash is not used but spread is number of years.