Non-Recourse Loans: Piece of Mind for Business Owners

Feb 7, 2023

As a business owner or investor, you have a lot on the line when you purchase real estate. If the financial tides turn and you suddenly default on your commercial mortgage, your personal assets could be at risk. Has this thought prevented you from conquering the next phase of your company’s business plan? A non-recourse loan might offer a solution.

In many cases, if a borrower defaults on a mortgage, the lender can seize the property and any additional assets the borrower owns to make up the loan difference. Non-recourse loans are different. If the borrower fails to make payments on a non-recourse loan, the lender can only acquire the property in question. The borrower’s personal assets are off-limits to the lender.

While personal asset protection is the main advantage of non-recourse loans, it’s not the only one. Here are a few additional benefits that non-recourse loans provide:

  • You might be able to borrow more money

Since the debt is not connected to your assets or income, higher loan amounts might be available to you.

  • They are a top choice for partnerships

If you are involved in a business partnership, who will put their personal assets on the line if the partnership defaults on the mortgage? A non-recourse loan avoids that difficult decision.

  • Your credit score might stay intact

If you default on a non-recourse loan, the lack of personal liability might preserve your credit score.

It seems you can’t go wrong with a non-recourse loan, right? Believe it or not, these loans come with a few cons.

Here is what you need to know:

  • You might pay a higher interest rate

Since non-recourse loans come with significant risk, lenders often minimize this by charging borrowers more interest.

  • There are exceptions to personal asset protection

Most non-recourse loans contain language stating that if the borrower files fraudulent paperwork, misrepresents the property or themselves, or commits other frowned-upon acts, the lender is free to seize personal assets to cover the loan balance.

Are you a business owner or investor interested in expanding your real estate portfolio? Do you want to protect your personal assets from the tough decisions made as you conduct business activities? Contact us today to determine if a non-recourse loan option is right for you.

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