Term loans have merits as well demerits both for the borrower and the lenders perspective of borrowers, term loan offer all the advantages and disadvantages with debenture financing. An additional demerits is that term loan contracts contain covenants restricting managerial freedom. The right of lenders to nominate directors on of the borrowing company may further restrict managerial discretion.

Similarly, the term loans provide all the advantages and disadvantages of debenture financing to institutions together with the additional benefit of restrictive covenants to protect their term loans are not represented by negotiable securities. Debt secularization long way in removing this limitation of term loans vis-a-vis debentures.

To conclude, term loans carry low cost and involve big b risk. There is no adverse effect of moderate restraint on managerial freedom.

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