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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Which of the following is a typical characteristic of a term loan from a bank or financial institution to a company?

A term loan typically has a fixed repayment schedule and is accompanied by security and protective covenants. The lender is a creditor and gets no voting rights, and interest normally accrues even during a moratorium on principal repayment.

  1. AIt is repayable only on liquidation of the company
  2. BIt has a fixed repayment schedule and is often accompanied by protective covenants and securityCorrect
  3. CIt gives the lender voting rights at general meetings
  4. DIt is always interest-free in the moratorium period and thereafter

Explanation

Term loans are repaid on an agreed schedule over a medium or long period and usually come with security and covenants restricting actions such as further borrowing or dividend payment. Lenders are creditors, so they have no voting rights as such. Interest generally accrues even during a moratorium.

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