What is a Non-Recourse Loan?

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There are dozens of types of loans. But nearly all fall under two categories: recourse and non-recourse loans. There is a simple answer to their differences. However, there are many details you need to know about these types of loans. 

At TCT Financial, we have non-recourse loan products, which means there is no additional personal liability to you. This is important when it comes to royalty loans.

The easy answer comes down to liability. Recourse loans allow lenders to seize assets not originally used as collateral for that loan. Meaning, if the value of your collateral, in this case oil and gas interests, fall, a recourse lender could go after more than just those interests for repayment. 

We don’t do that here. We offer non-recourse loans, which are the opposite. The only potential risk for nonpayment is the collateral or royalties you receive. 

The only real advantage of a recourse loan is that they typically carry lower interest rates. An example would be a car loan. If a car is repossessed due to nonpayment and it has a lower value than the amount owed, the lender can go after other assets to make up the difference. That’s the cost of the lower interest rates.

These are less common but are crucial when it comes to the borrower’s liability. We can offer these because of the reliability and predictability of oil and gas royalties. 

Even with fluctuating oil and gas prices, the royalties are often set in stone and stable. These are the only collateral needed for a royalty loan. That’s the added protection this type offers.

Most banks do not offer non-recourse loans for the reasons outlined above. There are exceptions, however. Specifically, some financial institutions offer limited non-recourse loan options to preferred borrowers. There are other specific instances of non-recourse loans like in North Carolina and Texas. In these states, mortgages are non-recourse because lenders cannot go after anything except the house or property in question.

The best way to understand what makes a non-recourse loan different is to talk to our TCT brokers. Apply on our website if you’re in need of royalty financial services.