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5 Reasons to Take Advantage of Non-Recourse Loans

January 03, 20243 min read

Struggling with cash flow? Looking for financing without all the risks?

Cash flow problems kill 1 in every 4 businesses. Loans can offset the problem, but they can represent huge risks to the personal finances of small business owners. 

That's where non-recourse loans come in.

Below, we're looking at 5 reasons to take advantage of non-recourse loans.

What is a Non-Recourse Loan?

A non-recourse loan is a loan secured against collateral, such as property. If the borrower defaults on the loan, the lender can seize the collateral as settlement of the loan.

Unlike recourse loans, the lender can't seize assets above and beyond the collateral, even if the settlement value is above the value of the collateral.

As a trade-off, non-recourse loans often have higher repayment rates. This offsets the risk to the lender.

5 Advantages of a Non-Recourse Loan

Easy to Secure

Non-recourse loans are often easier to secure than other forms of financing.

The high-interest rates of the non-recourse loan plus the collateral security make them an attractive option for lenders. That means a borrower is more likely to obtain the loan.

Non-recourse loan lenders also anticipate the kind of custom they expect for a non-recourse loan, so they're ready to lend to businesses that struggle to secure financing elsewhere.

Protect Yourself from Bad Debt

If you run a small business, then you know the finances of your business can quickly impact your own. When taking out a loan, you often risk damage to your own credit rating or quality of life.

A non-recourse loan gets around this problem by securing the loan against fixed collateral. No matter what, your financer will only be able to seize that collateral and nothing else in the event of a default.

That puts a hard limit on what you can lose by failing to pay back your loan.

Quick Financing

Obtaining recourse loans can be a convoluted process for many, particularly those in complicated financial situations.

Non-recourse loans are simpler transactions as the situation is transparent to both the lender and the borrower. Even in a worst-case scenario, the lender knows they'll get the collateral to settle the loan.

Short-Term Funding

Most recourse loans have repayment periods numbering in the years. For borrowers who only want to secure money in the short term, this is excessive.

Non-recourse loans are often available for shorter terms, sometimes even less than a year. With a shorter term loan, the borrower can settle the loan in just a few months.

Stabilize Cash Flow

Unpredictable cash flow is a major problem for small businesses.

With a non-recourse loan, a small business can secure regular cash flow without risk to the borrower's personal finances. That allows a business to pay its contractors and settle invoices when cash flow is unpredictable.

Making Use of Non-Recourse Loans

Non-recourse loans are a flexible way to borrow cash without a great deal of personal risk. That makes them attractive to small business owners who can't risk other methods of financing.

Are you ready to speak to a loan specialist? You can contact us today.


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