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The existence of external benefit and external cost leads to misallocation of resources. External cost For example, when drivers are not liable for the health damage of car exhaust, drivers will equate only marginal private cost with marginal benefit. But if drivers are forced to pay for the health damage of car exhaust, their marginal cost will go up by the amount of the external cost.
This is considered an external source as it is assumed that the money lent to the business will be paid back to the private individual in the future, possibly with an extra amount to compensate the individual for the help they gave.