nonrecourse loan
LowFormal / Technical / Legal / Business
Definition
Meaning
A secured loan where the borrower's liability is limited to the collateral; if the collateral's value is insufficient to repay the loan, the lender cannot pursue the borrower's other assets or income.
A financial instrument, common in commercial real estate and project finance, which provides lenders with recourse only to the specific asset securing the loan, effectively shielding the borrower's personal or corporate balance sheet from further liability if the project fails.
Linguistics
Semantic Notes
The term is a compound noun. The hyphenated form 'non-recourse loan' is also common. 'Recourse' here specifically refers to the lender's legal right to demand repayment from the borrower beyond the pledged collateral.
Dialectal Variation
British vs American Usage
Differences
No significant difference in meaning. Spelling conventions may lead to hyphenation ('non-recourse loan') more frequently in British English, though both forms are used in both regions.
Connotations
Neutral legal/financial term in both dialects. Implies a higher-risk loan for the lender, often resulting in higher interest rates.
Frequency
Equally low-frequency in both, used primarily in specialized finance, law, and business contexts.
Vocabulary
Collocations
Grammar
Valency Patterns
The lender provided a nonrecourse loan [to the developer] [for the project].The agreement was structured [as a nonrecourse loan].Vocabulary
Synonyms
Strong
Neutral
Weak
Vocabulary
Antonyms
Usage
Context Usage
Business
The developer sought a nonrecourse loan to finance the new shopping centre, limiting their personal risk.
Academic
The paper analysed the risk-premium differentials between recourse and nonrecourse lending in commercial mortgage markets.
Everyday
(Rarely used in everyday conversation)
Technical
Under a nonrecourse loan agreement, the lender's sole remedy upon default is foreclosure on the collateral, with no deficiency judgment permitted.
Examples
By Part of Speech
verb
British English
- The deal was structured to non-recourse the debt to the parent company.
American English
- The financing was nonrecoursed solely against the property's revenue.
adverb
British English
- The debt was issued non-recourse.
American English
- The loan was made nonrecourse.
adjective
British English
- They secured non-recourse financing for the venture.
- The loan agreement included a non-recourse clause.
American English
- It was a strictly nonrecourse arrangement.
- The nonrecourse provision was heavily negotiated.
Examples
By CEFR Level
- A nonrecourse loan protects the borrower from losing more than the pledged asset.
- Banks often charge more for nonrecourse loans because they are riskier for the lender.
- The investment fund specialised in providing nonrecourse loans for large-scale infrastructure projects, accepting the risk of asset-specific performance.
- Despite the attractive nonrecourse terms, the stringent covenants on the loan's cash flows made the deal less flexible than initially anticipated.
Learning
Memory Aids
Mnemonic
Think 'NO recourse' – the lender has NO way to get money from you beyond the specific asset you put up as collateral.
Conceptual Metaphor
FINANCIAL RISK IS A CONTAINED FIRE (the risk is confined to a single, defined asset and cannot spread to the borrower's other holdings).
Watch out
Common Pitfalls
Translation Traps (for Russian speakers)
- Avoid a direct calque. The correct financial/legal equivalent is 'бесправосудный заём' is incorrect. Use 'заём без права регресса' or 'кредит без права регресса (на заёмщика)'.
Common Mistakes
- Confusing it with an 'unsecured loan' (which has no collateral, whereas a nonrecourse loan is fully secured by a specific asset).
- Using 'nonrecourse' as an adjective without 'loan' or 'financing' (e.g., 'It was a nonrecourse' is incomplete).
Practice
Quiz
What is the key legal feature of a nonrecourse loan?
FAQ
Frequently Asked Questions
No. A nonrecourse loan IS secured by specific collateral. The 'nonrecourse' refers to the lender's inability to go after the borrower's other assets if the collateral's value is insufficient. An unsecured loan has no collateral at all.
They are common in commercial real estate (for property purchases), large project finance (e.g., for a power plant or toll road), and sometimes in vehicle financing. The borrower is often a single-purpose entity created just for the project.
Lenders accept this higher risk because they are confident in the value and revenue-generating ability of the specific collateral (like a profitable building). They are compensated with higher interest rates and thorough due diligence on the asset.
In a standard nonrecourse loan, the lender takes the collateral, sells it, keeps the amount owed, and must return any surplus to the borrower. The lender cannot, however, seek additional money from the borrower if the sale doesn't cover the debt.