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What is the difference between bank loans and commercial paper? Are there specific situations when companies...

What is the difference between bank loans and commercial paper? Are there specific situations when companies should resort to using commercial paper?

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Answer #1

The difference between commercial loans and commercial papers are as follows-

A. Bank loans can be short term or long term loans where as commercial loans are mainly short term debt issued by corporation.

B. Bank loans are mostly secured by the collateral, where as commercial papers are unsecured kind of loans and they are not secured by the collateral.

C. With commercial paper,the risk lies with the investor and with the bank loan the risk will lie with the lender.

D.commercial papers are often issued at a higher rate of interest and bank loans are often issued at a lower rate of interest.

company should be resort to using commercial paper when the liquidity of the company generally very high and it has the short term repayment capability because these are unsecured short term loans.

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