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Direct finance refers to the process where entities, such as businesses and individuals, acquire funds directly from financial institutions or investors without intermediaries. This method involves making an agreement between the borrower and lender, either through debt financing or equity financing. Debt financing is a form of direct finance where the borrower receives funds with the obligation to repay the principal amount along with interest over an agreed period. On the other hand, equity financing is a type of direct finance where investors provide funds in exchange for ownership shares in the company. In summary, direct finance enables entities to access capital markets and financial institutions directly, thereby reducing transaction costs and increasing efficiency.