A fixed term loan is the most straightforward type of debt instrument available, and it has very few differences when compared to a promissory note (which is really just a type of a term loan).
A fixed term loan has the important distinction that its maturity and size are fixed. This gives both the issuer and investors certainty about economics and repayment timing (barring any defaults or workout situations). Often when a Company gets close to the maturity of a fixed term loan they either extend the maturity date or refinance the term loan with another term loan. Fixed term loans are generally offered by larger capital providers such as credit funds or banks. Post 2008, there has been a significant increase in the amount of capital raised and the number of funds raising private credit funds. The larger multi-billion dollar funds specialize in providing credit capital usually in the $100M and above range and have become a very competitive alternative to getting financing from a bank. While banks source their capital from their deposit platforms and are one of the cheapest capital providers available, large credit funds have become a highly competitive alternative and can often compete directly on cost of capital.
A fixed term loan can be used to finance either working capital or assets. Although it is more likely to be used to finance working capital because assets are more difficult to match up exactly with a maturity date and the balance typically revolves up and down.
Both loans and bonds are debt instruments used to raise capital by public and private companies. The main difference between the two is the liquidity and tradability of the instruments. Bonds are most often issued by governments, large private companies or public companies. These issuers have a brand name that is known in the market and their securities are easily marketable. At the time a bond is issued, they are set up to be tradeable and they are issued into a liquid marketplace of buyers and sellers. Usually bonds are issued by leverage finance divisions of global investment banks who have the ability to market the security to their customers and then provide an avenue to buy and sell those bonds thereafter through their sales and trading divisions.
A corporate or government that issues a bond receives cash from the issuance on that day. Between issuance and maturity the bonds could be bought and sold tens, hundreds or thousands of times over and the issuer does not have to worry about it. All that matters is that on the day of maturity the issuer can find whoever owns the bond and pay them back (often done using proceeds of an additional bond issuance). On the other hand, loans (even multi-billion dollar corporate loans) often are issued and owned by an individual asset manager or a small ‘syndicate’ of asset managers, and rarely trade hands during the life of the loan.
