SCHÖNBÄCHLER (SCH) INVESTMENTS SÀRL 

Differences between a Recourse Loan and a Non Recourse Loan.

Out of ignorance, or translation errors, most wannabe brokers, intermediaries and some prospective clients, more often than not, confuse the term NON RECOURSE LOAN, with a loan that does not need to be paid back, and this is not the case. A loan is a loan, and ALWAYS needs to be paid back.

Non recourse loan, is a secured loan (this is very important, there is no such thing as an unsecured non recourse loan); where the borrower has placed and pledged certain specific assets as collateral to secure such debt obligation. However, the borrower is not personally liable for the loan, and for this reason, if the borrower fails to pay the loan back; the lender can seize the pledged collateral, but cannot go after other properties or assets of the borrower. Due to their higher risk, Loan to Value Ratios (LTV) are limited to 50% or so, so the collateral will be enough to cover the full amount of the loan in case of default.

A Recourse loan is another type of secured loan, where the borrower, regardless of the pledged collateral, is personally liable for the full amount fo the debt, and in case of default, the lender can seize and dispose of the pledged collateral, but if that is not enough to cover the loan, then can go after other assets, property and money of the borrower, to try to recover its loses.

As you can see, recourse or non-recourse, the borrower always has to pay back the loan to the lender. Transactions where the recipient of money does not need to pay it back are commonly known as GRANTS, which are non-repayable funds.

So next time you hear someone talking about a Non Recourse Loan, you will know for sure you still need to pay it back. If what you want is something that you do not need to pay back, ask for a GRANT, not for a non-recourse loan!

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