Cyclicality in the losses of bank loans is important for bank risk management and the resulting credit supply. Because loans have a different risk profile than bonds, evidence of cyclicality in bond losses need not apply to loans. Based on unique data we show that the default rate and loss given default of bank loans share a cyclical component, correlated with the business cycle. We infer this cycle by a new model that distinguishes loans with large and small losses. The losses within the groups stay constant, but the fraction of loans with large losses increases during downturns.