Why Do Companies Make Use of this Type of Debts?

• To obtain liquidity with the objective of financing required assets & to confront a possible temporary deficit of treasury.
• To reduce the financial costs by the direct attraction of short-term resources from the savers. They give the companies the possibility to go to the stock market with its own papers, without the need of an endorsement of a bank.

So then, we could say that the reason of its existence is to intensify the process of the non financial intermediation so the demanders of funds and savers can act in a more direct way taking advantage of the cost/`price of the resources acquired or loaned.

Characteristics of the Business Promissory Notes:

• They are issued by means of a discount over the nominal price and its profitability is calculate by the difference between the buying price and the nominal value of the promissory note that is received at the date of expiration date.
• Although the expirations aren’t fixed there exists emission “at measure” (according to the needs”) with an expiration term that can vary between the three and eighteen months.
• They have fiscal retention. This means that they have to confront the competition with the debt issued by the treasury in which there is no fiscal retention.

Not having the same fiscal advantages that the government debt has, they must offer a great profitability. Now then, for the issuer to be interested in realizing this type of emissions it will have to bear an inferior type at the banking financing cost (debts with credit institutions, for example); in case of the contrary they would have to decide for the second alternative we could say then that the profitability that they give are similar to that of other alternative financing assets but:

• A bit higher than that of public securities with the same terms.
• Somewhat lower than the type of interests in the banking market
• They usually, don’t have any special guarantee. They are place thanks to the good faith the investor has in the issuing institution
• The liquidity depends on the fluidity with which the securities on the secondary market functions, which will be in according to the volume of business promissory notes in circulation.

Note that these kinds of assets maintain a certain parallel with the treasury bills. They have similar characteristics of amortizations at a short term, emission at discount and security as far as refunding the principal and of the collection of the profits accorded. This last characteristic comes from the short term accorded. This last characteristic comes from the short-term expiration if the securities and have the fact that the principle issuers of these types of securities are usually first class solvent companies.