Non-recourse Lombard loans.

A non-recourse Lombard loan is a portfolio-backed loan whose only security is the pledged collateral: if the borrower defaults, the lender may take the collateral but cannot pursue the borrower’s other assets. It is one of three recourse profiles — non-recourse, limited-recourse, and full-recourse — and the choice among them is one of the most consequential decisions in structuring a Lombard facility.

The three recourse profiles

Recourse describes how far a lender can reach if a loan is not repaid. Under full recourse, the borrower stands behind the loan in full: if realising the collateral does not clear the debt, the lender can pursue the borrower’s other assets for the shortfall. Under non-recourse, the lender’s remedy is limited to the collateral alone; there is no claim on anything else the borrower owns, whatever the collateral turns out to be worth. Limited recourse sits between the two, capping or conditioning the lender’s claim beyond the collateral — for example to a defined amount, or only in specified circumstances. Every Lombard loan sits somewhere on this spectrum, and the position chosen shapes the rest of the terms.

What non-recourse actually protects

The value of non-recourse is containment. It fixes, in advance, the worst case for the borrower’s wider balance sheet: the most that can be lost is the pledged collateral. A founder who has borrowed against a single concentrated holding, or a family office financing one position within a larger estate, can know that a severe fall in that one asset cannot reach the rest of what they own. That certainty is the product being bought. It is particularly valuable where the collateral is concentrated or volatile — precisely the situations where the difference between recourse profiles matters most.

The price of protection: lower LTV and wider spread

Protection is not free, because non-recourse moves risk from the borrower to the lender. If the lender can look only to the collateral, the lender bears the full consequence of that collateral falling short. Lenders answer this in the terms. A non-recourse facility typically carries a lower loan-to-value, so there is a larger cushion between the loan and the collateral value, and a wider spread, to compensate for the risk retained. A full-recourse facility, where the borrower’s wider assets stand behind the loan, can support a higher loan-to-value and a tighter spread. Limited recourse prices between the two. None of these is inherently better; they are different trades between how much is advanced, at what cost, and how far the downside can reach.

When non-recourse is the right choice

Non-recourse tends to be the right structure when protecting the wider balance sheet matters more than maximising the advance. That is often the case for a concentrated single-stock position, where the borrower wants a hard limit on the consequences of one name falling; for financing where the borrower is unwilling, as a matter of principle, to put other assets at risk for a single transaction; and for situations where the certainty of a ring-fence is worth accepting a smaller, more expensive loan. The borrower is, in effect, paying — through loan-to-value and spread — for the lender to carry the tail risk.

When full or limited recourse fits better

Full or limited recourse fits when the borrower’s priority is the size or cost of the loan and they are comfortable standing behind it. A borrower with a diversified, liquid portfolio and confidence in its stability may reasonably prefer the higher loan-to-value and tighter pricing that recourse supports, judging the probability of ever being pursued beyond the collateral to be remote. The decision is a matter of the borrower’s own balance between advance, cost, and protection — and it interacts with the loan-to-value the position can support in the first place. The recourse profile is agreed at structuring, alongside loan-to-value, tenor, and custody, and it is one of the terms that most repays careful thought. It is also why comparing Lombard facilities on the headline rate alone is misleading: two loans at the same rate but different recourse are not the same loan.