What Is Qualified Non-Recourse Debt?

by Marquis Codjia - Updated September 26, 2017
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A qualified non-recourse debt allows a lender to prevent operating losses resulting from adverse credit developments. These developments may include borrowers' defaults or temporary inability to repay loans or meet other financial commitments.

Using Collateral as a Guarantee

A non-recourse debt is a loan agreement in which you provide collateral -- or a financial guarantee -- to a lender. In a qualified non-recourse debt agreement, both the lender and borrower are "qualified," meaning they are legally allowed to engage in a contract.

Loans and Lines of Credit

Types of qualified non-recourse debt arrangements vary by transaction. You may sign a qualified non-recourse loan agreement with a bank or an insurance company. You also may apply for a qualified non-recourse line of credit or overdraft agreement with a lender.

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Reducing Risk

A qualified non-recourse debt arrangement is beneficial to business partners. A lender limits the risk of loss in case a borrower files for bankruptcy or faces temporary financial distress. A borrower who experiences cash problems or cannot repay a loan does not lose other properties in a bankruptcy proceeding.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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