Nonrecourse loans are a common type of secured loan in which the borrower puts up collateral but is not held personally liable beyond the collateral. Because of several logistical benefits, these types of loans are commonly used for financing commercial real estate. As such, owners of both small and large businesses should be particularly familiar with this form of loan, its benefits, and how it can help them.
How Nonrecourse Loans Work
As with all secured debts, the borrower puts up collateral against the loan. In nonrecourse loans, this collateral is typically real estate. These loans usually offer the following benefits to their borrowers:
- High capital expenditures
- Long loan periods over which to pay back the debt
- Certain tax benefits
Nonrecourse loans can be complicated, and it is often advised to discuss the implications thoroughly with an experienced attorney before you make financial commitments.
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