Non-Recourse Finance
Candlefocus EditorThe primary difference between non-recourse finance and traditional lending is that the lender’s claim against the borrower’s assets is limited to the profits from the project which the loan was used to fund. This limits the lender’s exposure to default risk and allows the borrower to retain their other assets. For this reason, non-recourse financing allows borrowers to access larger loans than what would be available through traditional methods. Additionally, since the lender’s exposure to risk is reduced, non-recourse financing often comes with more relaxed terms, such as a longer repayment period or a lower interest rate.
In order to secure a non-recourse loan, the borrower must typically provide significant collateral in the form of the collateral which the loan is being used to fund. For example, if the loan is used to finance the development of a new land parcel, the borrower must provide the land as the collateral. However, this does not mean that the land is in danger of being seized by the lender. As mentioned before, their rights are limited to collecting repayment from the profits of the project.
Overall, non-recourse financing is a great option for borrowers who need a large loan and are looking for a less risky way of repaying it. It provides the borrower with a larger sum of money, with relaxed terms and a lower interest rate, all while keeping their other assets out of the equation. However, the borrower must be prepared to provide significant collateral in order to secure the loan.