Why would a lender make interest only, non-recourse loans?
Many of our lenders incorporate a provision in the loan agreement that provides for them to share in the appreciation of the securities, if any, at the end of the loan term. This provision specifies a percentage gain that exclusively belongs to the borrower, the “Growth Cap” which can be up to 300% of the original value of the securities. If the shares are above the Growth Cap at the end of the loan term, then the lender would receive the lion’s share (up to 90%) of this further appreciation.
