What is a primary issue with rights issues compared to loans?

A primary issue with rights issues compared to loans is that they typically involve higher issue costs. Rights issues are a method for companies to raise capital by giving existing shareholders the right to purchase additional shares at a discounted price. This process can entail various expenses, such as legal fees, printing costs for the rights issue documents, and costs associated with marketing the offering to shareholders. Additionally, there may be advisory fees for investment banks or financial consultants involved in structuring the rights issue.

In contrast, loans usually have different cost structures. While they may involve interest payments and some fees, these can often be more predictable and lower overall than the cumulative costs associated with issuing new equity through a rights issue. Thus, the overall financial burden of executing a rights issue tends to be greater, making this option the correct identification of the challenge that rights issues present compared to obtaining financing through loans.