Non-Recourse Financing
Content
Definition
Non-Recourse Financing is a loan where the lender is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower.
Usage and Context
Non-recourse financing is typically used in project finance and real estate transactions, where the lender`s risk is limited to the project`s success.
Frequently asked questions
- What is the difference between recourse and non-recourse loans? Recourse loans allow the lender to claim the borrower`s other assets if the loan is not repaid, while non-recourse loans limit the lender`s claim to only the project`s profits.
- What are the disadvantages of a non-recourse loan? The disadvantages include potentially higher interest rates, stricter lending criteria, and limited availability compared to recourse loans.
- What are the benefits of non-recourse financing? Benefits include reduced risk for the borrower, as their other assets are protected, and the lender`s risk is confined to the project`s success.
Benefits
Non-recourse financing protects the borrower`s other assets, encourages investment in high-risk projects, and limits the lender`s recourse to the project`s outcomes.
Conclusion
Non-recourse financing offers a way to fund projects with the benefit of protecting the borrower`s other assets, though it may come with higher costs and stricter terms.
