External Finance

[Eugine]

External finance is any way in which a company raises financing other than using its own money. This most commonly involves issuing equity in the company, such as selling stocks. It can also include taking out loans. As a general rule, raising external finance has a higher cost than internal financing. There are two main ways for a firm to raise money. One is internal financing, which covers money generated by the business, most notably its annual profits. Internal financing can also include some other methods, including selling a physical asset such as a building. The other way of raising money is external financing, which usually involves getting cash from an outside source without giving goods or services in return. Instead of giving up goods and services, a firm getting external finance will usually give up either debt or equity.