Indoors, with the loop tied directly into the harness, short of taking the mickey, the worst I can think of is that you might get hit in the face by the knot.
The knot itself is just as safe and 10cm is not silly. I'd be perfectly happy from a safety point of view climbing on a 10cm figure-of-8 or double-bowline. Or for that matter a 20cm loop, though I'd prefer not to for non-safety reasons.
It's at least possible it leads to another mistake. Generally anything sloppy is less obviously when it's wrong. That could be the setup itself or something looking like: the rope looking like the slack is all gone, but there is still slack in the knot. However, that is a really subjective line of thinking and if you're relying on something like that to be safe, you have other problems.
You also slightly lose the compliance in the rope but the extent is tiny between a 5cm and 10cm eye.
I think this is a hang-up from outdoors where things getting snagged/taffled etc is more likely and more dangerous.
All that said, why wouldn't you tie a neat loop?