External Funds

External funds

Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g., bank loan or bond offering.

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external funds

The funds that are raised from sources outside a firm. The monies that are received from the sale of stock and bonds are external funds. Firms seek external funds when they are unable to finance expenditures with money generated from operations. External funds are particularly important for a young, fast-growing company that has capital requirements that greatly outstrip its ability to generate funds internally. Compare internal funds.

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External Funds

Funding that a company raises from any source other than itself. Two common types of external funding are bond and stock issues. A company seeks out external funds when it wishes to expand its operations or other activities, but lacks the cash flow to do it independently. Providers of external funds almost always expect to receive something in return; for example, bondholders expect interest and principle repayment, while stockholders expect to receive a portion of the ownership of the company.