What is the effect of non-recourse features in leasing on risk assessment?

• A. Non-recourse features shift risk to the borrower/guarantor; increases emphasis on collateral quality and creditworthiness; requires clear documentation of remedies and recourse provisions.
• B. Non-recourse features shift all risk to the lender.
• C. Non-recourse means collateral is not required.
• D. Non-recourse eliminates the need for documented remedies.

Answer: (B)

Non-recourse features tie the transaction’s risk primarily to the asset and the lender, not to the borrower’s personal credit. In risk assessment, this means the lender bears the financial exposure if the asset underperforms or loses value, so the focus is on collateral quality, the asset’s residual value, and how market conditions affect cash flows. The contract must clearly spell out remedies and recourse related to the asset, so the lender can recover value if payments falter. This is why the risk view centers on asset-based factors and the strength of the collateral, rather than the borrower’s personal guarantees. It doesn’t mean all risk shifts to the lender in every sense, and it doesn’t negate the need for collateral or documented remedies.