The kind of loop now attached to this hole is seldom used or heard of any more.
In the late Middle Ages, however, a loop was a narrow window, in a castle or other fortification, through which an archer could direct his missiles, but so narrow as to be a baffling target for an opposing bowman.
The masonry of the window widened inwardly to permit a wider range for the defending archer.
Possibly to avoid confusion between loop, “window,” and loop, “a fold,” the first became identified as loophole.