Commercial paper is a promissory note in which the issuer promises to pay the buyer a specified amount at its maturity.
What is commercial paper?
Buyers purchase commercial paper at a lower rate than they are expected to receive at maturity. Commercial paper can be issued by companies to raise funds to pay off their short-term financial obligations. It is typically unregulated in the U.S. by the SEC unless its maturity date exceeds 270 days. The expectation of payment by the issuing company is typically backed by their credit.
Commercial paper is similar to a bond, but its maturity periods are much shorter; most issued commercial paper is set to mature after 30 days. Commercial paper is also not typically available to most investors; only financial institutions or extremely wealthy individuals usually can purchase it.