When issues of collateral are involved, the type of business loan you take out can be of paramount importance. In fact, this reality is precisely why you should first ascertain whether your lender engages in recourse loans or non-recourse loans. Although for both of them, the lender is allowed by law to seize assets, the distinction manifests when there’s still money outstanding even after the assets have been seized to repay the default.
The Skinny on Recourse Loans and Non-Recourse Loans
Understand that no matter which one you choose, both types of loans mandate the seizure of assets should you default to pay the loan. Now, after the these assets have been collected and then sold by the lender, if there’s still debt, then if the original loan was a recourse loan, the lender/debt collector is empowered by law to pursue more of the borrower’s assets. Obviously, it is now clear that a non-recourse loan simply means that the lender has to stop there if the debt hasn’t been repaid. There may, of course, be other legal actions she can take on a different front, however.
Advantage of Recourse Business Loans
You may be wondering – why would anyone take out a recourse business loan? Well, frankly, since the ability to pursue other assets is instantiated into this type of loan, it reduces the risk. Thus, this can be passed on to the borrower in the form of lower fees. It also allows those with poor credit (relatively, of course) to have access to loans that would otherwise be beyond their purview.
Advantage of Non-Recourse Business Loans
It’s simple: if you default, do you really want to risk properties and assets being seized? After all, you are presumably a creditworthy borrower, which speaks to your penchant to pay back what you borrow. It’s a safer move for you, but it does mean interest rates will generally be higher since the lender doesn’t benefit from the reduced risk of the recourse loan alternative.
Distinctions like the above are precisely what OneClick Commercial Funding specializes in. For more information on loans and finance in general, get in touch with us.