Solutions ( Borrowing and Lending ) - Direct Lending

Now, I am a lender who wishes to lend Rs. 5 lac to a company that in total needs Rs. 1 crore. I intend to do so to get a mutual benefit out of this lending.
To solve the problem of need for information, there are various market institutions that make it easier to lend. The financial press - Economic Times, Business Week, etc. Also, accounting firm's audit a firm's books. Firms that borrow from the public have to make such information public. There are also many investment information services which function like KPO's and provide information.
To solve the problem of writing a contract, new securities such as the Rs. 1 crore worth of securities that the above company has to offer are usually sold to the public through an underwriter, generally a securities firm. The company is the that needs the money is the issuer. of the securities. The underwriter will negotiate the terms of the loan contract and will also appoint a trustee to ensure compliance of the rules. This trustee is usually a bank. The underwriter usually buys the whole securities from the issuer and then sells it to the public.

Everybody here will be having an interest in doing their work well, because it affects the business that they are going to get in the future. For instance, if the underwriter ( securities firm ) gets a reputation of selling securities that turn out to be duds, then it is doomed. This means that the costs to me are greatly reduced as I hardly have anything to do on my own and the info available in more reliable.

Now, to address the problem of liquidity conflict. Suppose that circumstances change immediately after I lend my money and I need my money back. Obviously the company is under no obligation to give it back to me so soon. Financial markets have a solution to this - a way for me to get my money back without the company having to give it to me. I could simply sell my security to someone else, that is, transfer the 5 lacs from my name to somebody else's and get paid that much amount by that guy. These securities are transferable securities. Of course, there again would be the problem of having to find a buyer, which would again make me face the problems of information, reliability, blah blah. However, there is an organised market for such a trade to take place and it is called a secondary market. A market for new issues is called a primary market. There are two important types of people that come into picture in a secondary market - Dealers and Brokers. Dealers stand ready to buy at quoted prices. I could sell my securities immediately by contacting the dealer and accepting his price. Brokers will bring buyers and sellers together and themselves would not be involved in buying or selling. Dealers earn through the difference between the price at which they sell it to some other buyer and price at which they buy from you whereas broker will charge a commission for their services. In such a dealer-broker system, if organization is loose and communication is mainly over telephone or internet, it is called an OTC ( Over-The -Counter ) market. However, if organization is more structured and communication is face-to-face, it is called an exchange, like the Bombay Stock Exchange.
Clearly, if secondary market is good, loan will be more attractive to lenders and thus, borrowers will have to pay less returns. This is how both the borrowers and lenders will benefit.