When a promissory note is given by one party to another for some valuable consideration, as money loaned, goods sold, or services rendered, such note, in the hands of the party to whom it is given by the maker, is called "business" or "commercial" or "trade" paper, for the reason that it represents a bona fide business or commercial transaction between two parties. In this respect it differs essentially in character from a promissory note given to a bank for a loan of money received directly from it.

When a bank loans money on such paper to the party who has received it for value and makes himself responsible for its payment by endorsing same, it is called "discounting" business or commercial paper, and while a National bank is prohibited from making direct accommodation loans to any one party beyond the limit of one-tenth of its capital stock, no restriction is placed upon the amount of business or commercial paper it may discount for any party actually owning and negotiating same.

The reason, presumably, is that there is less risk of loss upon paper which is based upon a bona fide exchange of commodities between two parties, both of whom are responsible for its payment, than upon paper which represents simply a direct loan of money, even though the note upon which the direct loan is made is secured by collateral.

For in the case of the business paper, if the maker is unable to pay at maturity, the endorser will exert himself to repay the bank to protect his credit, while if the maker of a collateral note finds it inconvenient to pay at maturity, he is apt to make less exertion to this end, because he considers the bank secured for the debt by the collateral pledged, which, however, the bank may not be able to turn into money - at least without cost of more or less time and trouble.

As a rule, therefore, it may be laid down that the best and safest paper a bank can hold in times of prosperity or of financial disaster is that upon which two different parties in good standing are responsible, or, in other words, good two-name paper.