Commercial Paper Definition & Meaning | Financial Term | CSIMarket
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Glossary

Commercial Paper

Financial Term

Commercial paper (CP) is a short-term, unsecured debt instrument issued by corporations, financial institutions, and other large entities to raise funds. It is typically issued for a term of up to 270 days, but most commonly for 30-60 days.

CP is an important source of funding for large corporations and financial institutions, as it provides them with quick access to cash without the need to go through the lengthy and often expensive process of obtaining a traditional bank loan. The interest rate on CP is typically lower than that of a bank loan, which makes it an attractive option for borrowers.

CP is typically sold to institutional investors, such as money market funds, commercial banks, pension funds, and hedge funds, who are looking for safe and liquid short-term investments. Since CP is unsecured, investors rely on the creditworthiness of the issuer to determine the risk of default.

The process of issuing and trading CP is facilitated by the financial industry through a network of dealers and brokers. CP is often traded in large denominations of $100,000 or more, which makes it inaccessible to individual investors.

Overall, CP is an important tool for corporations and financial institutions to raise short-term funds quickly and at a low cost, and it provides institutional investors with a safe and liquid investment option for their short-term cash balances.


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