What are the advantages and disadvantages of commercial papers?
Advantages of commercial papers:
1) It is quick and cost effective way of raising working capital.
2) Best way to the company to take the advantage of short term interest fluctuations in the market
3) It provides the exit option to the investors to quit the investment.
4) They are cheaper than a bank loan.
5) As commercial papers are required to be rated, good rating reduces the cost of capital for the company.
6) It is unsecured and thus does not create any liens on assets of the company.
7) It has a wide range of maturity
8) It is exempt from federal SEC and State securities registration requirements.
Disadvantages of commercial papers:
1) It is available only to a few selected blue chip and profitable companies.
2) By issuing commercial paper, the credit available from the banks may get reduced.
3) Issue of commercial paper is very closely regulated by the RBI guidelines.