When it comes to the age-old non-recourse vs. recourse loan debate, we recommend that you always go the non-recourse loans route!
Well, let’s take a look at all the reasons why non-recourse loans make for a more flexible and safer financing option for borrowers.
Non-Recourse Vs. Recourse Loan – What’s the difference?
Before we jump to conclusions, we’ll explore the key difference between a non-recourse loan and a recourse loan.
If a borrower applies for a recourse loan but defaults on their payment, the lender has the right to seize the collateral and recover their investment. If the lenders can’t compensate the complete losses with the collateral’s value, they have a right to go after the borrower’s other assets.
On the other hand, by signing up for a non-recourse loan, borrowers can protect their assets and their credit reports in case of a default. Lenders cannot seize or sell off other assets, and they can’t do much about recovering their outstanding balance.
Non-Recourse Loans Protect the Borrowers
Non-recourse loans ensure that in case of default, borrowers and their assets are always protected. With this option, borrowers don’t need to worry that their personal property, vehicles, retirement accounts, or other valuable belongings would be seized and sold.
A Much Simpler Underwriting Process
Since non-recourse loans only need single, high-value collateral, the underwriting process is much simpler. Borrowers don’t need to provide details of other assets, such as their personal property or any other investment properties. These valuable assets, attributes, and appraised values are kept out of the underwriting process, making it short and quick.
Fewer Contingent Liabilities
Most lenders and banks consider recourse loans as ‘contingent liabilities.’ This means that the loan would be counted as a liability if the borrower defaults.
The next time you’re considering applying for a loan, the lenders would be less inclined to extend loans to borrowers with many ‘contingent liabilities‘ on their records.
With a non-recourse loan, borrowers aren’t exposed to any contingent liabilities and can get quick loan approvals in the future.
More Convenient for Borrowers
If something goes wrong, borrowers have a secret weapon to renegotiate the loan terms – their non-recourse loan!
How does that work?
Since non-recourse loans do not protect the lender, they might not be able to compensate for any outstanding debt. However, borrowers can leverage this situation to their advantage and work out new loan terms with the lenders. This makes non-recourse loans a more convenient option for borrowers and ensures that they work out the repayment strategy with the lender.
Choose Commercial Private Equity For Your Next Real Estate Transaction
At Commercial Private Equity, we offer non-recourse loans against a profitable, tangible asset. Our lending firm has been in the real estate business for the last 75 years and has learned how to optimize the loan application experience for our clients. As a result, with low-interest rates and low LTV ratios, we ensure that our clients get the best loan terms for their hard money loans, bridge loans, or construction loans.
Get in touch with us to learn more about our non-recourse loan options.