Commercial Paper

For many corporations, borrowing short-term money from banks is often a labored and annoying task. Their desire to avoid banks as much as possible has led to the widespread popularity of commercial paper.

Commercial paper is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount, reflecting current market interest rates. Maturities on commercial paper are usually no longer than 9 months, with maturities of 1-2 months being the average.

Commercial paper is usually issued with denominations of $100,000 or more. Therefore, smaller investors can only invest in commercial paper indirectly through their broker or in a money market funds.