Non-Recourse Funding
Content
Definition
Non-Recourse Funding is financing where the lender can seize the collateral if the borrower defaults, but cannot seek further compensation if the collateral does not cover the full amount of the loan.
Usage and Context
Non-recourse funding is often used in real estate and project finance, where the lender`s recovery is limited to the collateral`s value.
Frequently asked questions
- What is an example of a non-recourse financing? An example of non-recourse financing is a mortgage loan where the lender can only claim the property itself if the borrower defaults and cannot pursue the borrower`s other assets.
- What is the difference between recourse and non-recourse? Recourse loans allow lenders to pursue the borrower`s other assets if the collateral does not cover the loan amount, while non-recourse loans limit the lender`s claim to the collateral alone.
- What are the disadvantages of a non-recourse loan? The disadvantages include potentially higher interest rates, more stringent lending requirements, and limited availability compared to recourse loans.
Benefits
Non-recourse funding limits the borrower`s risk to the collateral, protects other assets, and can be beneficial for high-risk projects.
Conclusion
Non-recourse funding provides a financing option that protects the borrower`s other assets, though it may come with higher costs and stricter lending criteria.
