Indirect finance is where borrowers borrow funds from the financial market

Financial market

In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...

 through indirect means, such as through a financial intermediary

Financial intermediary

Financial intermediation consists of “channeling funds between surplus and deficit agents”. A financial intermediary is a financial institution that connects surplus and deficit agents...

. This is different from direct financing where there is a direct connection to the financial market

Financial market

In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...

s as indicated by the borrower issuing securities directly on the market

Market

A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

. Common methods for direct financing include a financial auction

Auction

An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...

 (where price of the security is bid upon) or an initial public offering

Initial public offering

An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

 (where the security

Security

Security is the degree of protection against danger, damage, loss, and crime. Security as a form of protection are structures and processes that provide or improve security as a condition. The Institute for Security and Open Methodologies in the OSSTMM 3 defines security as "a form of protection...

is sold for a set initial price).

Indirect financing (government)

This is where the government gives privilege, in the form of reduced tax burdens, as a means of supporting a particular interest rather than collecting and redistributing tax revenue (which would be considered as a direct financing method by the government). For example, a reduced tax burden on financiers provides focused monetary benefits and helps to effectively lower bond prices (provided that tax savings has a tangible effect on bond pricing and that the aforementioned would pass these tax savings to their respective clientele). This could be applied in a number of applications from infrastructural investment to education or military spending.