Financial Intermediary - What Is It And Why Should Look For It?

Searching for financing, although it is a great habit to finance your growth strategies and increase your working capital, can be a task that requires time and a great analysis to know what type of financing you need. We have talked about the various sources of financing for each need of your business. From bank loans to factoring, each of these sources is tailored to your capital and operating expense needs.

To find out which of all of them is best suited to what you are looking for, you can turn to a specialist in this type of matter. The most common is the financial intermediary that, as their name suggests, is a link between financial institutions and companies that seek private financing in exchange for interest.

Financial intermediaries are becoming more and more common in the financial sector and there are great advantages to starting to work with one. In this post, we explain what their main tasks are and how the relationship between creditors and creditors works.

What is a financial intermediary?

An intermediary is a moral person who works as a mediator between a person who now wants to invest his money and a company that requires private financing, offering attractive interest rates for investors in exchange for a commission for companies.

The task carried out by financial intermediaries is intended to ensure that the investor is not in direct contact with the companies that require the investment. On the commission they receive, the financial intermediaries calculate it on the intermediation margin, which is measured based on the difference between the interest rate they offer to investors and the one they ask for from borrowers.

Characteristics of financial intermediary:

An intermediary serves as a mediator for financial transactions between investors and companies that need financing. They can offer various sources of private financing such as leasing or factoring or credits. There are two types of financial intermediaries: banking and non-banking

Types of financial intermediaries:

There are two types of financial intermediaries: banking and non-banking. Below we explain each of them.

Bank financial intermediaries:

Bank financial intermediaries with private banks and savings banks. They offer traditional financing services through the funds they raise from their clients. These financing can be loans or bank credits. Non-bank financial intermediaries:

Non-bank financial intermediaries have non-bank operations that they carry out through non-monetary assets such as shares, investment funds, and bonds. As their name indicates, they cannot carry out banking and credit activities. Here are the factoring companies, insurers, and trusts, to name a few examples.

Benefits of financial intermediary:

Through a financial intermediary, people who have savings can benefit companies that have growth strategies such as starting to sell their products in new international markets. As we have mentioned before, companies that seek to enter international trade greatly benefit national economies whose GDP depends on this type of activity.

Also, financial intermediaries have a general understanding of the needs of each client and the general situation of the local economy. Therefore, they can reduce the costs of financial transactions that someone else could not achieve on their own.

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