A company can use commercial papers to raise funds. It is a promissory note carrying the undertaking to repay the amount on or after a particular date. Normally it is an unsecured means of borrowing and the companies are allowed to issue commercial papers as per the regulations issued by SEBI and Company’s Act. Some of them are:
- Minimum size 25 Lacs
- Maximum limit is 100% of working capital limit.
- Period is from 15 days to 1 year, and every renewal is treated as a fresh commercial paper.
- While using Commercial Paper, company should ensure that its net worth is at least 4 crores or more and it has been noted by at least 2 rating agencies like CRISIL, ICRA, CARE.
Commercial papers on maturity are to be honoured at face value and the registrars or the issue agencies lay down all the formalities of funding through commercial papers
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