External Source of Company Capital - QS Study
QS Study

External Source of Company Capital

Capital is the money or a monetary value by which a firm runs its activities is called the capital of the concerned firm. The total of cash, bank balance, receivables, movable or immovable, visible or invisible properties and their monetary value is the capital of an organization.

External Source

Beside the internal side, nowadays there is an array of external sources of the fund from where a company can easily collect its capital. Some of the sources are discussed below:

Debenture: Debenture is an easy way to raise capital from external people. The debenture is one kind of loan that a company takes from the people. A company is liable to pay the certain interest rate on the debentures and return the amount after a certain period of time.

Bond: Bond is one kind of debenture that is backed by collateral as security. It’s a good source of external funding. Though it is easy to collect money from people for collateral assets have to be given to the bond buyers for security.

Bank: Banks non-a-days become the best friend for the company to raise capital. Though banks demand collateral from the company while granting but for big and renowned companies banks often consider it. But bank charges the higher interest rate on loan. Banks mainly disburse short and medium term loan. Some banks give overdraft and credit card facilities to their reputed clients.

Financial Institutions: Various types of financial institutes are successfully conducting business around the country. They are providing any type of loan whether shun or long term. A company can easily take a loan from these types of financial institutes. Leasing firms, insurance, mortgages institutes, investment banks, and many more financial institutes assist companies to raise capital by the certain interest rate. Even some financial institutes take the whole duty to collect or finance the required capital for a company.

Managing agents: Managing agent is another source of raising company capital. When a company takes no way to raise capital, it goes through the managing agents for required capital. Managing agents often guarantee for the total capital of a company by the certain charge. The managing agent is liable for raising capital for a company. The managing agent also gives the loan to the company for taking the interest.

Deposit: Deposit is also a source of capital, but it is not true for all kinds of companies. Deposits are the source of capital for banks and for financial institutions where people keep their savings.

Mortgage: When a company has no way to raise capital, it goes to the mortgage company. Mortgage Company takes the ownership of an asset and gives the loan to the company.

International financial institutes: In the age of globalization that nothing is impossible. Foreign financial institutes often grant loan for the productive business purpose of any company all ova the world.

From the above discussion, we can say that these are the different sources from where a company can collect capital for the business organization. A firm must have to use those sources efficiently and effectively for developing the company.