External Financing

External financing - External financing is financing obtained from outside of the company or firm. It can provide an additional form of financing for your company. There are two types of external financing; one type is for debt and the other for equity. In external debt financing the company will take out a bank loan and is financed by the issue debentures that must be paid back at a specific time. The company is now in debt to the bondholders who buy these debentures. Should the company become bankrupt the bank loan the shareholders would be entitled to any remaining assets. Equity financing happens when a company decides to give up their ownership in order to raise funds. They will do so by selling the company stock through an investment banker or they may not have a middleman involved. They may use angel investors or venture capitalists. However, angel investors or venture capitalists will not finance a product unless the growth potential is substantial.