Direct vs. Indirect Finance

In any type of financial market, money/wealth is transferred from one group to another.  This transfer can, however, take place directly or indirectly.

When wealth changes ownership directly (known as direct finance) the saver (or investor) and the borrower deal directly with one another.   An example could be as simple as a loan to a friend or an investor directly investing a new project – similar to the activity of Capital Corp Merchant Banking.

The overall advantage of direct finance is that the borrower is able to communicate directly to the investor to make sure all all communication channels are clear in order to permit as smooth-sailing an experience as possible.  This is also commonly less expensive as there is no middle party setting up the relationship.   The relationship also has disadvantages but those are similar to most finance transactions, namely credit risk and diversification.

The reverse side relationship of direct finance is when another party, a type of intermediary, brings the investor and borrower together – known as indirect finance.  This relationship in common practice is very impersonal, and often the investor and borrower never meet.  However, Capital Corp Merchant Banking can work with an indirect finance relationship, in the capacity of banking consultant or broker referring the project, although we at Capital Corp Merchant Banking Orlando will insist on meeting the Client and staying in direct communication once the introduction is complete.

Always make sure that any decision you make is an informed one,

Capital Corp Merchant Banking Orlando

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