We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Non-Recourse Loan?

Gerelyn Terzo
Updated: May 17, 2024

In the debt markets, there are different types of loans that can be obtained. A non-recourse loan is one that tends to favor the borrower. This is because in the event of a default on a loan, the lender has rights only to the assets that are considered collateral for the debt. If the loan is extended for project finance, which is corporate activity for a specific project, the only recourse that a lender has in the event of default includes assets tied to that endeavor. In the event that an individual defaults on a personal non-recourse loan, the lending institution typically is limited to recovering the assets that were used to secure the loan.

It's possible that an individual can obtain a non-recourse loan for a mortgage. In this type of financing, a borrower is issued a loan for the purpose of purchasing a new home. If the borrower eventually defaults on that loan, the lender is entitled to recover the home and property in a foreclosure but is limited to these assets. Even if the borrower who is in default has other savings or assets held elsewhere, the lender of the mortgage loan typically does not have the right to seize those items. Typically, a second mortgage that might be issued in a home refinancing is a recourse loan that gives the lenders greater rights if a default occurs.

Project finance is a type of financing activity extended by financial institutions to businesses that are launching some capital-intensive project for which additional funding is needed. Borrowers might not qualify for more traditional forms of financing, and committing a portion of the project revenues to the lender before the cash is generated — which is typical in this type of non-recourse debt financing — might be the best option. If a project does not produce the anticipated revenues, however, the loan is secured by only the assets tied to the developing project.

Participants in the capital markets could use a non-recourse loan to help fund an acquisition of some sort. If a business is buying assets, such as real estate properties, it might have enough of its own cash to finance some of the deal. Funding for a percentage of the acquisition, however, might need to come from debt financing, and if the borrower qualifies, a non-recourse loan might be preferred. The precise terms of non-recourse debt can change based on the lender, and the borrower might be able to consider products from various lenders.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.