What is indirect finance?
This is when a business borrows money from a third party, such as a bank, rather than directly from investors. The company pays the third party interest, which in turn pays interest to its investors or depositors.
Where have you heard about indirect finance?
If you're in business, you might have heard about direct and indirect finance. Unlike indirect finance, direct finance involves getting funds directly from investors. This may involve an initial public offering, where shares in the company are offered for sale.
What you need to know about indirect finance.
Indirect financing is often a quicker way for businesses to raise funds than direct financing, because the intermediary takes care of gathering investors and performing due diligence. In the case of direct financing, the borrower needs to approach investors themselves, which may increase the time it takes to raise the money. In the context of indirect financing for a government, this involves offering reduced tax burdens rather than collecting and redistributing tax revenue, which would be considered direct financing.