Use of Commercial Paper

The use of commercial paper is restricted to a comparatively small number of very large concerns that are exceptionally good credit risks. Dealers prefer to handle the paper of firms whose net worth is $100 million or more and whose annual borrowing exceeds $10 million. One potential problem with commercial paper is that a debtor who is in temporary financial difficulty may receive little help because commercial paper dealings are generally less personal than are bank relationships. Thus, banks are generally more able and willing to help a good customer weather a temporary storm than is a commercial paper dealer. On the other hand, using commercial paper permits a corporation to tap a wide range of credit sources, including financial institutions outside its own area and industrial corporations across the country, and this can reduce interest costs.

What is commercial paper?

What types of companies can use commercial paper to meet their short-term financing needs?

How does the cost of commercial paper compare with the cost of short-term bank loans? With the cost of Treasury bills?

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