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Tuesday, June 19, 2007

Commercial Paper: A Form of Business Financing

Commercial paper is one of the oldest forms of business financing in the United States, dating back to the 1830s. The securities called commercial paper are promissory notes of well-known corporations that, unlike the promissory notes given for bank loans, may be bought and sold. Although commercial paper is an old form of financing, commercial paper has played a relatively small role in the credit markets until recent years. Much of the commercial paper is issued by finance companies.

Commercial paper is issued in two ways. Large issuers, particularly the “captive” finance companies of the automobile producers, such as the General Motors Acceptance Corporation, have salesperson to sell their commercial paper directly to banks and corporation. Smaller issuers sell their commercial paper to dealers, who is turn sell it to banks and corporations. A number of the government bond dealers also act as dealers in commercial paper. There is also a resale or secondary market for commercial paper and the dealers who participate in the issuance of new commercial paper buy “secondhand” commercial paper from banks and corporations and resell it to others.

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2 comments:

Kevin said...

Thanks for your informative post. I'll always gradually visit your blog.

Jamie Stanton said...

I'll have to keep this post in mind. I want to run a business soon, which means I can use all the help and advice I can get. Lately I've been thinking about buying a business instead of starting one from scratch. Any suggestions? Advice. Thanks.

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