Non-recourse finance limits a finance provider's repayment claim primarily to specified assets, receivables or project cash flows. If the financed asset does not pay as expected, the provider generally cannot pursue the borrower beyond the agreed collateral, subject to contractual exceptions.
How does non-recourse finance work?
The provider underwrites the quality of the receivable, asset or project cash flow and takes defined rights over it. Pricing and eligibility reflect the risk that repayment depends on that source rather than the borrower's general balance sheet.
What exceptions can restore recourse?
Contracts commonly preserve claims for fraud, misrepresentation, disputed invoices, ineligible assets, breaches of representation or failure to perform the underlying contract. “Non-recourse” therefore does not mean the provider assumes every possible loss.
How does the funding amount affect proceeds?
Assume an eligible $100,000 receivable is purchased at a 95% advance with a 2% finance charge. The initial funding is $95,000. If the charge is calculated on the full face value, it is $2,000, leaving illustrative net proceeds of $93,000 before any reserve adjustments or other fees.
Illustrative non-recourse receivable calculation
| Calculation step | Amount | Method |
|---|---|---|
| Eligible receivable | $100,000 | Approved face value |
| Initial funding | $95,000 | $100,000 × 95% |
| Illustrative finance charge | ($2,000) | $100,000 × 2% |
| Illustrative net proceeds | $93,000 | $95,000 − $2,000 |
Actual proceeds depend on the contract's fee base, timing, reserves, taxes and eligibility rules.
Non-recourse vs. recourse finance
Recourse finance allows the provider to require repayment or replacement when the asset does not pay under agreed conditions. Non-recourse finance transfers more credit risk, so it may involve stricter eligibility, concentration limits and higher pricing.
What should a business review?
Read the recourse events, warranties, dispute treatment, dilution rules, reserves, notice requirements and collection control. Confirm whether the transaction is a sale of receivables or a secured borrowing under the applicable accounting and legal framework.
