Advantages and Disadvantages of Term Loans

The advantages of term-loans are:
1.      The cost of term loan is lower than the cost of equity or preference capital.
2.      Term loans do not result in dilution of control.
3.      Term loans are preferred since they are backed by security, which the lender prefers.
The disadvantages of term-loans are:
1.      Term loans do not carry voting rights.
2.      Term loans, generally do not represent negotiable securities.
3.      Payment of interest and repayment of principal is obligatory. Failure to meet these obligation may threaten the existence of the firm.