The lender is agreeing to terms that do not include access to any of the borrowers' assets beyond the agreed upon collateral, even if they default on the loans. Payments will only be made when and if the funded projects generate revenue. A recourse loan is a type of loan that can help a lender recoup its investment if a borrower fails to pay the liability and the value of the underlying asset is not enough to cover it. A recourse loan lets the lender go after other assets of that debtor that were not used as loan collateral.
A non-recourse loan is defined as a loan where the borrower or guarantors are not personally liable for repaying any outstanding balance on the loan. Non-recourse financing is typically found on longer term permanent commercial real estate loans placed on a stabilized and performing asset.
What is the difference between recourse and non recourse loans?
The primary difference between the two is that a recourse loan favors the lender, while a non-recourse loan benefits the borrower. So the distinction between recourse loans and non-recourse loans comes into play if money is still owed on the debt after the collateral is sold.
The IRS treats recourse and nonrecourse debt differently. For example, if part of your loan was canceled or forgiven, the IRS may views the canceled or forgiven amount as taxable income. ... But in a nonrecourse situation where your lender cancels the remaining debt, you won't have to pay taxes on it