A commercial paper is typically issued by a corporation for the purpose of financing receivable accounts and meeting short-term liabilities and inventories. On average, the length of maturity on a commercial paper is less than 270 days. A commercial paper is generally not backed with any kind of collateral.
A commercial paper is a short-term, unsecured debt instrument used by corporations. As commercial papers generally do not require collateral, they are usually issued at a discount that reflects interest rates in the market. A company with a low-quality debt rating generally has to offer a higher discount rate to issue the debt.
As of 2015, companies issuing a commercial paper does not need to register it with the Securities and Exchange Commission. This condition only applies, however, to commercial papers with a maturity period of under nine months or 270 days. Capital generated from a commercial paper can only be used on assets that are considered current, such as inventory. Commercial papers are not allowed to be used on any fixed assets without the involvement of the SEC.
In the United States, commercial papers are typically issued in sums of $100,000 or more, and they are not directly accessible to smaller-sized investors.