Non-Notification Loan


DEFINITION of 'Non-Notification Loan'

A full-recourse loan that is securitized by accounts receivable (AR). Customers making accounts-receivable payments are not notified that their account/payment is being used as collateral for a loan. They continue making payments to the company that rendered services or made the original loan, and the company then uses those payments to repay their lender for financing obtained. Non-notification loans do not transfer the risk to the third party. If the AR payments are not made by the customers, the company is still liable for repaying the loan it obtained using the AR as security.

BREAKING DOWN 'Non-Notification Loan'

Commercial banks and finance companies are the primary originators of non-notification loans. They began providing the service to commercial clients in the early 20th century because the Federal Reserve would not buy notes backed by AR. Today non-notification loans can be attractive for the financing company because they do not assume any credit risk on the receivables sold or assigned.

  1. Full Recourse Debt

    A guarantee that no matter what happens, the borrower will repay ...
  2. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  3. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  4. Credit

    1. A contractual agreement in which a borrower receives something ...
  5. Asset

    1. A resource with economic value that an individual, corporation ...
  6. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
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