How do bank loans differ from bonds?
The main features of the two big sources of corporate debt.
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Loans are private, usually floating-rate, often secured, can be repaid early at little cost, often amortise, and traditionally carry maintenance covenants tested every quarter. Bonds are tradable securities, usually fixed-rate, often unsecured, repaid at maturity, protected from early repayment by call protection, and carry lighter incurrence covenants. Loans are cheaper but more restrictive.
The full answer
| Feature | Leveraged loans | High-yield bonds |
|---|---|---|
| Rate | Floating (base rate + margin) | Usually fixed |
| Security | Senior secured | Often unsecured or second ranking |
| Tenor | 5–7 years | 7–10 years |
| Amortisation | Some (term loan A) or minimal (term loan B) | Bullet at maturity |
| Prepayment | Usually at par, small soft call | Call protection, then premiums |
| Covenants | Maintenance (traditionally); many "cov-lite" today | Incurrence only |
| Investors | Banks, CLOs, loan funds, private credit | Bond funds, insurers |
| Disclosure | Private information to lenders | Public offering documents |
Companies mix both: cheaper secured loans for the senior layer, bonds for longer, more flexible capital.
Mistakes to avoid
Saying all loans have maintenance covenants — many institutional loans are covenant-lite.
Follow-ups they may ask
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