What type of companies raise money on the commercial paper market, and what do they do with it?
The big and financially sound firms that typically issue commercial paper have plenty of revenue to fund long-term needs. But they also sometimes need short-term cash to cover everything from buying supplies, paying vendors and making payroll, so they turn to the commercial paper market. When such a firm temporarily has extra cash and wants to get a decent return to offset inflation, it can switch roles and serve as a buyer of commercial paper to make cash available to other companies. Such borrowing is often unsecured, with no assets serving as collateral. Such transactions are backed by the borrowing company’s high credit ratings and regular cash flow, and expectation that it can make repayment once it receives money due from its own customers. It’s less common, but asset-backed commercial paper can be secured by assets such as consumer loans. Companies with low credit ratings generally raise cash through bond offerings rather than short-term commercial paper. Q: How long do companie
