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What is direct finance?

Direct finance

This is when somebody borrows money directly from the financial markets, instead of using an intermediary or third-party service. This is usually done to avoid high borrowing costs of indirect finance, where interest rates can raise the overall cost of loans.

Where have you heard about direct finance?

You may have come across this concept if you have ever bought a government-issued bond in its original form, even if you used a broker, as the price wouldn't have been increased by the associated interest rates.

What you need to know about direct finance.

Most borrowers who use direct finance will usually do so to avoid the high interest rates associated with indirect lending, for example, borrowing money from a bank. One way of doing this is by selling securities or shares to raise funds. This is to avoid a situation where a lender borrows money at a certain rate of interest, before loaning it to a borrower at a higher rate.

Find out more about direct finance.

The opposite of direct finance is indirect finance - find out more with our guide here.

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