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.
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.