Non-Recource Finance

Posted in Finance, Accounting and Economics Terms, Total Reads: 210
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Definition: Non-Recource Finance

Non-recourse financing is a type of financing in which loan is repaid from the revenue of the project that the loan intends to fund. Non-recourse financing is mainly used for project financing.


Non-recourse financing is high risk financing because lender is not entitled to any security against the loan except the project that lender has financed. So lender requires high technical domain knowledge and financial modelling knowledge to assess this kind of project financing.


Borrower is not personally liable for the repayment of the loan because only collateral used in case of non-recourse finance is assets of the project. Non-recourse finance is used to finance the projects that require high capital expenditure, long loan periods, and uncertain revenue streams. Examples of such projects are construction of power plants, commercial real estate, construction of industrial facilities, manufacturing facilities etc.


In most cases, lenders look to revenue projections as the source of repayment of loan. Repayment does not start until project gets operational. Even after that continuous operation of the project is required for repayment of the loan. So critical analysis of project is required before financing.


Other examples of non-recourse financing is agricultural financing, dealer financing, export financing etc.

 

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