This paper studies the asymmetric information in lending relationships between firms and external agents (financial intermediaries or direct investors). The theoretical model analyses the choice of financial sources, subject to a moral hazard problem and monitoring services provided by financial intermediaries. The results show that the higher the amount of internal funds that firms invest in their projects, firms’ profits (in both contracts) increase, but more so with the direct lending. The paper also evaluates the model on a panel of Spanish manufacturing firms over the period 1991-1997.