What Is Non-Recourse Loan
What Is Non-Recourse Loan?
According to https://www.investopedia.com Non-recourse debt is a type of loan secured by collateral, which is usually a property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan.
- Non-recourse debt is a type of loan that is secured by collateral, which is usually property.
- Lenders charge higher interest rates on non-recourse debt to compensate for the elevated risk (i.e., the collateral’s value dipping below the amount owed on the loan).
- Non-recourse debt is characterized by high capital expenditures, long loan periods, and uncertain revenue streams.
Recourse debt allows the lender to go after the borrower for any balance that remains after liquidating the collateral. For this reason, lenders charge higher interest rates on non-recourse debt to compensate for the elevated risk.
Recourse vs. Non-recourse Debt
Recourse debt gives the creditor full autonomy to pursue the borrower for the total debt owed in the event of default. After liquidating the collateral, any balance that remains is known as a deficiency balance. The lender may attempt to collect this balance by several means, including filing a lawsuit and obtaining a deficiency judgment in court. If the debt is non-recourse, the lender may liquidate the collateral but may not attempt to collect the deficiency balance.
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