Commercial Paper

Last reviewed: September 2, 2026

Commercial paper is short-term, unsecured debt issued by companies and financial firms to meet near-term funding needs. In the U.S., commercial paper typically matures within 270 days and is commonly issued by borrowers with strong credit quality.

Reviewed September 2026

How commercial paper works

A company can raise short-term cash by issuing notes directly to investors or through dealers. The notes are often sold at a discount and repaid at face value when they mature. Because the debt is unsecured, investors rely heavily on the issuer’s ability to repay.

Simple example

A large company needs cash for payroll and inventory while it waits for customers to pay invoices. It issues 60-day commercial paper to institutional investors. The company receives cash now and repays the note when it matures.

Commercial paper vs. bonds

Commercial paper is mainly a short-term funding tool. Corporate bonds usually have much longer maturities and may be used to finance long-term projects, acquisitions or capital spending. Bonds also tend to have a more developed secondary market.

Main risks

The biggest risk is credit risk: the issuer may be unable to repay. Commercial paper can also have limited liquidity, especially during stressed markets. A short maturity reduces interest-rate exposure, but it does not eliminate default risk.

Related concepts

• Short-term
• Credit rating
• Cash equivalents
• Treasury bill
• Bonds

Primary reference

For the formal definition and current regulatory context, see Federal Reserve: Commercial paper definition.