What is Asset Backed Commercial Paper?
Almost every business, whether small or large, will at some point have difficulty in providing for its short-term cashflow needs. It is very common for a business in this situation to use a form of short-term financing known as commercial paper. A commercial paper loan usually matures in three to six months. Sometimes, commercial paper is backed by some type of collateral, in which case it is known as asset-backed commercial paper. In a typical situation, asset-backed commercial paper is purchased by a business which intends to pay back the loan when receivables come due – in other words, when their customers pay them money that they have already committed to pay. If a business needs money in the short term for inventory or payroll, for instance, it may purchase an asset-backed commercial paper loan to meet these immediate needs. Then, when client accounts come due, the loan is paid back with that money. Even though it is also common for businesses to maintain lines of credit with bank
