Non-recourse debt

Non-Recourse Debt is a loan where the borrower’s responsibility is limited only to the collateral pledged. If the borrower defaults, the lender can seize the collateral but cannot go after the borrower’s other assets.

Key Points:

1. Limited Liability: The borrower is liable only for the collateral.
2. Collateral-Based: Usually secured by property, equipment, or other assets.
3. Lender Risk: Lenders cannot recover any shortfall beyond the collateral, so interest rates may be higher.
4. Common Uses: Real estate loans, project financing, corporate loans.

Example:

A company takes a non-recourse loan of ₹1 crore to buy a building, using the building as collateral. If the company defaults and the building sells for only ₹80 lakh, the lender cannot claim the remaining ₹20 lakh from the company’s other assets.