Squib Ltd. is a large creditworthy company operating in the kashmir Valley. It is an export-oriented unit, dealing in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply of raw materials and the duration of the production cycle has also increased.
To add to the problems of the organisation, the suppliers of raw materials who were earlier selling on credit are asking the company for advance payment or cash payment on delivery . The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only-term shortage of cash. As a finance manager of the company, name and explain the alternative to bank borrowings that the company can use to resolve the crisis.

Explanation

Commercial paper Commercial paper is issued by large creditworthy companies to raise short-term funds at lower rates of interest than the market rate.
(i) It is an unsecured promissory note, having a maturity of 15 days to one year.
(ii) It is a negotiable instrument, transferable by endorsement and delivery.
(iii) It is sold at discount and redeemed at par.
(iv) It is an alternative to bank borrowing . The original purpose of commercial paper was to meet working capital needs of companies.
(v) It is used by companies for bridge financing. a method of financing used by companies before issuing shares or debentures, to cover the expenses associated with the issue of such securities , i.e. floatation costs (e.g. brokerage, commission, printing of applications, advertising , etc.)