Government Revives Commercial Paper to Slash Red Tape — Companies Can Now Bypass Banks for Short-Term Funding

Portugal's Council of Ministers has approved a new decree-law that overhauls the country's commercial paper framework, stripping away layers of bureaucracy that have kept this short-term financing instrument largely unused for two decades. Under the new rules, companies can issue debt directly to the market without hiring a bank as intermediary, without producing a formal prospectus, and without waiting for explicit regulatory approval from the CMVM — a combination of changes that the government says will finally give Portuguese businesses a credible alternative to traditional bank lending.

What Is Commercial Paper, and Why Has Portugal Never Really Used It?

Commercial paper is, at its core, a short-term debt instrument — a promise by a company to repay investors within a set period, typically under a year. In mature capital markets like the United States, France, or the Netherlands, commercial paper is one of the most common ways for companies to cover cash-flow gaps, finance inventory, or bridge the time between issuing invoices and collecting payment. It is fast, cheap, and direct.

Portugal has had a legal framework for commercial paper since 2004, but the instrument never gained traction. The reasons were structural: companies were required to produce a formal prospectus — an expensive and time-consuming document more suited to long-term bond issuances — and to obtain explicit authorisation from the Comissão do Mercado de Valores Mobiliários (CMVM), Portugal's securities regulator, before any paper could be placed. On top of that, every issuance required the involvement of a licensed financial intermediary, effectively meaning a bank had to be hired to facilitate the process.

The result was a system designed for transparency that, in practice, priced out the vast majority of Portuguese companies. For a mid-sized firm needing EUR 500,000 in short-term liquidity, the cost and complexity of commercial paper made a simple bank overdraft the rational choice every time. The reputational damage from the Espírito Santo group's commercial paper scandal in 2014 — in which retail investors were sold paper from entities that later collapsed — further chilled whatever appetite remained.

Three Structural Changes

The new decree-law, to which the business newspaper ECO obtained access, rests on three specific reforms.

First, all commercial paper must now have a maturity of less than one year. This is not merely a tightening of terms — it is a regulatory shortcut. Under EU securities rules, debt instruments with maturities under 12 months are exempt from the requirement to publish a prospectus. By hard-coding this shorter maturity into law, the government eliminates the single biggest cost barrier to issuance. The accompanying explanatory text notes that the change "harmonises Portuguese law with international best practice, where commercial paper maturities do not, as a rule, exceed nine months."

Second, the CMVM approval process shifts from an authorisation model to a notification model. Under the old regime, companies submitted their issuance documentation and waited for the regulator to grant formal permission — a process that could take weeks. Under the new framework, companies must notify the CMVM of their intention to issue, and the regulator then has 10 business days to object. If no objection is raised, the issuance proceeds. It is a reversal of the burden: instead of the company proving it should be allowed to issue, the regulator must demonstrate a reason to block.

Third, the mandatory involvement of a financial intermediary is abolished. Companies with the internal capacity to structure their own issuances can now go directly to the market, cutting out the bank fees and commissions that have traditionally been layered onto Portuguese capital-market transactions. For large corporates with sophisticated treasury operations, this is a straightforward saving. For smaller firms, intermediaries remain available — they are simply no longer compulsory.

Why Now?

The timing is not accidental. Portuguese businesses are navigating a period of elevated borrowing costs, with the European Central Bank's key interest rates still well above the near-zero levels of 2021–2022. Bank lending, while available, has become more expensive and — for some sectors — harder to access as institutions tighten credit standards in response to economic uncertainty.

At the same time, there is growing investor demand for short-term, higher-yielding instruments. Money market funds, institutional investors, and even some family offices are looking for alternatives to government paper, which has seen yields compress since the Hormuz ceasefire earlier this week. Commercial paper from creditworthy corporates could fill that gap.

The Portuguese state itself has already tested the waters. In December 2024, the IGCP — Portugal's treasury agency — launched a EUR 10 billion commercial paper programme, and in its 2026 funding plan signalled its intention to "dynamise" the programme further. If the sovereign can use it, the logic goes, so should the private sector.

What It Means for the Portuguese Economy

If the reform works as intended, the effects could ripple well beyond company balance sheets. Portugal has long been criticised — by the OECD, the European Commission, and domestic economists — for its over-reliance on bank financing. According to the Bank of Portugal's latest financial stability report, bank loans account for more than 60 percent of non-financial corporate debt in Portugal, compared with roughly 40 percent in France and under 30 percent in the Netherlands.

A functioning commercial paper market would begin to shift that balance, giving companies a second channel for short-term liquidity and reducing the systemic risk that comes from having an entire economy's working capital dependent on a handful of banks. It would also deepen Portugal's capital market — a structural weakness that has been flagged repeatedly as an obstacle to the growth of mid-cap firms that are too large for micro-credit but too small to issue bonds on international markets.

For expats running businesses in Portugal — and there are a growing number, particularly in tech, tourism, and professional services — the practical benefit is straightforward: a potentially cheaper and faster way to finance short-term needs, without the relationship-dependency and paperwork of Portuguese commercial banking.

Risks and Caveats

The reform is not without risk. The memory of the Espírito Santo commercial paper debacle, in which thousands of retail investors lost savings on paper sold through Banco Espírito Santo branches, still looms over the market. Consumer protection advocates have questioned whether reducing regulatory oversight — even for a professional-grade instrument — creates new vulnerabilities.

The government's position is that the new framework explicitly targets institutional and qualified investors, and that the shorter maturity and notification system provide adequate safeguards. Whether that is sufficient will depend on how the CMVM exercises its 10-day objection window in practice, and whether the regulator has the resources to review notifications at speed.

There is also the question of take-up. Regulatory reform is a necessary condition for a functioning market, but it is not sufficient. Companies need to be aware the instrument exists, investors need to be willing to buy it, and credit-rating infrastructure needs to develop to support price discovery. None of these things happen overnight.

The decree-law has been approved by the Council of Ministers and will now proceed to publication in the Diário da República. Companies and market participants should expect it to enter into force within weeks.