What is typically true about loans compared to bonds?

The correct answer highlights that loans typically feature more covenants compared to bonds. This is essential because covenants are specific provisions imposed by lenders in loan agreements that require the borrower to meet certain conditions or restrict certain activities. They serve to protect the lender’s interests by providing oversight and control over the borrower’s actions and financial health.

In the context of loans, covenants can take various forms, such as maintaining specific financial ratios, restrictions on additional borrowing, or requirements for regular reporting. This level of supervision is often more stringent than that found in bond agreements, which tend to be more standardized and less personal. Consequently, loans are tailored more closely to the needs and risks associated with the borrower, thus necessitating a greater number of covenants.

In contrast, even though bonds may also contain covenants, they typically do not impose as many restrictions, as they are frequently issued in larger amounts to a broad array of investors and are standardized for ease of trading and liquidity. This difference in structure and intention leads to loans being characterized by more complex covenant arrangements in comparison to bonds.