11 Ways to Find Freelance Writing Jobs

You have heard of how to make money from freelance writing jobs.

You have the requisite writing skills as a freelancer.

Nevertheless, how do you find such jobs?

That is the million-dollar question I will attempt to answer in this article.

Searching in the right places will reveal that plenty of freelance writing jobs are available for you.

The truth is freelance writing jobs outstrip the supply of writers!

How to Find Freelance Writing JobsI know this statement is shocking and I have caught your attention.

Plenty of sites offer freelance writing jobs on the internet.

You will know where to locate such jobs in this post.

But at the same time, take caution and be on the lookout for scam sites.

They may promise pay rates that are way above the industry norms.

But such sites are a waste of time and money.

What Is Freelance Writing?

Let us start with the basics and get some facts right by asking what qualifies as freelance writing?

Let me answer by giving a brief introduction on freelance writing.

You will be ready after this as I show you how to find the freelance writing jobs.

Freelance writing involves writing articles for different clients without long-term commitments.

It is on an as-needed basis and the freelancer is under no long-term contract.

There are two main broad types of writing as a freelancer.

– Academic Writing

The first is as a freelance academic writer.

This involves writing assignments for students in schools, colleges, and universities.

You work as a freelancer under contract with a company that hires after passing a test.

Your job is assisting the student to write their homework as a freelancer.

In other instances, it may involve writing papers for master and doctoral students.

Academic writing requires a certain level of education.

If you are an expert in a certain subject, you should specialize in that area.

However, academic writing gigs are few.

In this post, I will focus on non-academic writing.

– Non-Academic Writing

This covers a wide range of freelance writing jobs.

One of the areas of specialty includes writing articles and blogs for companies.

Most of the clients are the small and medium businesses that need content that will give them online presence.

Ghostwriting is another great prospect for a freelance writer.

It involves writing content for someone else for a fee.

You take the money but not the credit for the work, remain anonymous and thus the name “ghostwriter.”

Other openings as a freelancer include writing for news feeds.

Freelance writers provide most, if not all, of the content for online trade magazines.

Working as editors and copywriters is available for freelance writers who want taxing work.

Editors work as freelancers in editing the huge content submitted by writers.

Copywriting basically involves re-writing content.

You work to make it attractive to the client and increase their website traffic.

It increases sales, is catchy, and gets noticed.

SEO is another area where one may specialize as a freelance writer.

The freelancer writes charming content that gets the website better ranking.

It also gets more visibility on different search engines.

Writing Skills and Interest as a Freelance Writer

Before you embark on the journey of finding freelance writing jobs, take a pause.

Ask yourself, “What captures my interest as a freelance writer?”

Link your strength as a freelance writer to your interest.

Secondly, analyze the writing skills that you have.

It is useful to align your skills and interest with the potential freelancing job.

This makes your searching much easier.

Polish up your skills by taking an online writing refresher course.

Instead, you may wish to study for a copywriting or editing course.

The most important aspect of freelance writing is creativity and the ability to follow instructions while submitting work on time.

If you feel your interest is writing novellas, then ghostwriting may be for you.

Such a project is long-term in nature.

For others, freelance writing jobs that are of a shorter term may appeal to you.

Follow this to find freelance writing gigs that fit your interest and abilities.

Quality Places Where You Can Find Freelance Writing Jobs

I advise anyone looking for quality writing jobs to be realistic.

Be open to suggestions and start from there.

Setting expectations that are beyond your ability are no wise as you start.

Learn as you move along and increase your range of writing skills.

Accept jobs that pay less as you start and grow your portfolio of writing skills.

The following are ways to find freelance writing jobs.

1. Cold Pitching

Cold pitching may sound scary the first time but it offers one of the best ways to find work.

It is useful in getting a steady source of income and offers better pay as you deal with the client.

In addition, the client may direct you to other referrals.

This depends on the quality of work you give to the client.

Cold pitching involves contacting prospects as a freelance writer.

Clients include companies, bloggers, and small businesses.

Market your ability to help them grow their business through your writing skills.

This may look hard for a beginner but gets easier with time.

Start by locating a business through their website or social media platform.

Identify what they lack currently in terms of content.

It could be a blog or content that does not appeal to their clients.

Draft a cold pitch and send it to them and suggest how they can improve their content.

State the reason for hiring you as a freelance writer.

How will they benefit from working with you?

Include in your pitch: Who you are (include a small bio).

How you located them (through their website or social media) and what new content you offer.

2. Respond to Job Board Ads

Job boards offer great freelance writing jobs for you as a writer.

Some of the jobs boards include Indeed, Monster, Upwork, and Guru.

The first two are general job boards.

They post freelance writing jobs such as summer writing jobs.

Freelance jobs for those working from home are also available.

The qualifications are not strict and you can qualify for most freelance writing jobs.

The lack of a college degree should not worry you.

Job boards such as Upwork and Guru qualify as “Niche Job Boards.”

Typical requirements may include possessing a college degree.

Other categories of job boards include free and paid job boards.

It is advisable to start with the free job boards as a first-time freelance writer.

Search the internet for free job boards such as Problogger, Writer Weekly, and Contena.

As a freelance writer, you may quote a certain rate for your work.

In other instances, the job adverts specifies the rates.

Build your confidence by applying for as many freelance writing jobs as you can.

The more you apply, the higher the chances of landing a freelance writing job.

3. Inquire from Friends, Family, and Colleagues

This may sound easy and of no value to a freelance article writer.

But as the saying goes, charity begins at home.

Begin by letting those close to you know that you are a freelance writer.

In this way, they may refer a client to you or perhaps require your services in the near future.

You may find other writers in your location and take the time to engage and learn from them.

They may be useful in linking you to freelance writing jobs.

Such writers may give you some of their extra work.

If possible, create a business card and distribute to friends and family.

State clearly that you offer freelance writing services.

4. Create a Website

Creating a website may sound hard if you have just started as a freelancer.

It is, however, one of the best ways to attract high-paying clients.

Owning a website attracts high-value clients as they build trust in you through the website.

It builds confidence and guarantees high-paying freelance writing gigs.

The website signals your professional approach to writing as a freelancer.

This may not be viable for a freelancer who has just started out.

You may not have the money to hire a web designer as you start out.

Instead of a website, use your personal blog to market yourself.

Your ultimate aim is to own a professional website which will help to advertise your freelance writing services.

It helps to earn you credit as a freelance writer.

Most freelance writers churn out 500-word posts for $10.

From the onset, strive to earn good wages and try to settle for the above meager payments.

Offer high-quality freelance article writing services.

5. Maximize Your Social Media Presence

Social media platforms offer a great avenue to advertise yourself.

Simply, advertise that you are available for hire which is easy and absolutely free.

Make it a part of your social media profile and let potential prospects get to know that you offer freelance writing.

Other writers and friends will soon know that you are a freelancer.

Enlarge the circle of people who know about your writing services so as to stand the higher chances of getting hired.

You will start getting messages of prospects that need your freelance writing services.

Presto! The money will soon start coming in.

Maximize your social media platform to earn you money as a freelancer.

The more accounts you have, the better for you.

6. Try Warm Pitching

I have already talked about cold pitching and you are now wondering what this warm pitching stuff is?

Warm pitching is an indirect way of looking for freelance writing jobs.

It involves creating a relationship with your potential client or prospect.

It is slower but may establish very strong and long-lasting clients.

Engage the prospect over a long period before making a formal introduction.

Meanwhile, follow their Tweets (ReTweet their posts) and Like them on Facebook.

Put yourself on their radar and they will get to know you with time.

When you feel that you have nurtured the relation long enough, introduce yourself formally.

Ask for a freelance writing gig and you will be amazed at how many jobs you will get.

It is worth the time taken to “romance” the prospect.

7. Join a Freelance Writing Group on Facebook

Facebook offers freelance writers the opportunity to find freelance jobs.

This depends on which Facebook groups you choose to join.

The group helps to give you online presence as a freelance writer.

It also posts jobs which may be available.

Collectively as a group, it attracts potential prospects that identify with the group.

The group is identified with specific writing skills.

Such groups include, “Blogger2Business” amongst others.

Being a part of a group helps a beginner to gain standing as a freelance writer.

8. Locate a Content Agency

I will advise you to go for the smaller content agencies.

Content agencies hire freelance writers to write great content for their clients.

It may be in advertising, PR or social media.

Look for an agency that offers training as part of its package.

From experience, the smaller content agencies are the best for a beginner.

The pay and support is great when compared to the bigger agencies.

A good place to start your search is in the WordPress space.

9. Ask Your Current Clients’ for a Referral

Having worked with your clients for a while, ask for a referral.

It may not be a good idea if you have only been with a client for less than a month as it may work against you.

You should ask a client with whom you have a working relationship of more than a month.

The language that you use is very important as it will work in two ways.

It will get you new clients and will also decide the future relationship with the current client.

Be polite, courteous, and thank the current client.

Communicate with them through social media or email and give the client time to respond.

Avoid flooding them with many messages asking for the referral

A good client will link you with additional prospects.

This will ensure that you have more freelance writing jobs.

Repeat the same pattern with the referred clients.

This gives you a steady flow of writing jobs.

10. Write for Free! Write as a Guest Writer!

This sounds like a waste of time as a freelance and should not be taken seriously.

Writing for free or as a guest gets you noticed and lets your readers know who you are.

They sample your work for free and along the way, a prospect will notice your work

The prospect will then hire you as a freelance writer based on your publications.

Your published articles act as your sample work.

This will assist in advertising you as a freelance writer.

By now, maybe you are at a loss on how to start.

Start by doing an internet search with the tag, “Write for us.”

Refine your search by adding the area you are good in.

I encourage every freelance writer to write at least one free article per month.

Introduce your work to new readers and new prospects every month.

11. Make Use of Craigslist

This is the last of the top ways to find freelance writing jobs.

Craigslist may turn out to be your best friend as a freelancer or a waste of time.

For some, it offers freelance writing jobs which are of low quality.

I aver that searching in the right places will get you work on Craigslist.

Checking the sites of the big cities will reveal better freelance writing jobs.

The pay is better compared to the sites of the smaller cities.

Clients needing writing services in big cities pay better rates.

Try checking out the sites of the big cities such as New York, Miami, and Los Angeles.

Once you have matched the freelance writing jobs with your skills, start pitching.

You will find that Craigslist will offer some quality clients with good pay.

Let Us Recap What We Know so Far

To recap, let me say that your success as a freelance writer depends on you.

Be proactive as you look for the best freelance writing jobs.

Trust in your skills and be keen as you look for the best freelance writing jobs.

The secret to success as a freelance writer is to keep on applying for jobs.

You stand better chances of landing a freelance job if you pitch more.

Try to match the freelance writing jobs that you want with the skills you have.

Get started and start earning as a freelance writer and good luck.

How to Become a Copywriter the Right Way

A career as a copywriter seems the right thing for you.

You are creative and full of new ideas and you want to unleash your creative juices.

Article writing and blogging does not excite you as it used to.

Freelance copywriting calls out to you but the question is where do you start from?

Become a CopywriterPerhaps the starting point is; does it pay?

These and many questions will get answered in this post.

I do not promise quick riches overnight neither do I  promise it will be easy.

I promise that reading this article will be worth your time.

Let’s us get started.

Why Most “How to” Articles Are Not Useful

You must have read other articles on how to become a copywriter.

Most of them have the following common content.

Some will suggest you take time to learn about copywriting.

Some will offer an online course to teach you about copywriting.

Others will add no value to what you already know.

Some articles will make it look easy while others will make it look hard and next to impossible.

Copywriting is both a science and an art and can be learned by anybody and studied as a science.

The most important point I am making is that copywriting can earn you money.

This can be achieved without formal training and that is the bottom line.

What Exactly Is “Copywriting?”

Copywriting is not copying stuff to rewrite and there is no copying of anything.

Copywriting involves writing content that drives sales.

You play around with words and create new content for your clients.

It is original and creative because copywriters look at the big picture and focus on the headline.

Copywriters come up with content that connects with the consumers.

Ideally, they are good students of human behavior and the purchasing decisions of most buyers.

The content they create captures our thoughts and we take a pause and visit their site.

As consumers, we want to know more about the company.

The increased traffic on a company site will translate to increased sales.

The more people who visit the site will result in better sales.

The increased sales will drive up the revenue for the client.

This is the reasons why good copywriters are in demand.

Every company that wants to increase its web presence will need a copywriter.

Copywriters work with advertising or marketing teams.

They are team players and create the million dollar ideas that will sell.

They simplify complex marketing concepts and make them saleable.

Types of Copywriters

There are three types of copywriters.

The first step is to identify which type of copywriter you want to be.

This will guide you as you begin your journey as a copywriter.

The three types of copywriters are agency, corporate, and freelance copywriters.

1. Agency Copywriter

The first on our list is the agency copywriter who works in an advertising agency.

These include firms such as Ogilvy & Mather and WPP.

They use copywriters who create innovative content for their clients.

Most big advertising agencies reside in the large cities which include New York and Los Angeles.

The salary of an agency copywriter depends on several things with the first being the size of the agency.

If the agency is large, the salary is expected to be reasonable and you can earn up to $100,000.

Depending on your competence, you may earn a higher salary.

Those used by the mid-tier agencies earn between $50,000 and $70,000.

Agency copywriting involves working with different clients.

Clients will demand to see results that will translate into increased sales.

The working environment in an agency is super-creative.

You work with creative and talented people.

As a copywriter, you unleash your creative powers on a daily basis.

2. Corporate Copywriter

This is the second class of copywriter in our list.

The work of a corporate copywriter is relatively simple.

It borders on being termed as “boring” and  is a stable job and unassuming job.

No fireworks are expected from the corporate copywriter.

Most of them are barely noticed where they work  and  create content for the firm they work for.

The content varies from web pages to TV spots while other content created is for brochures.

The salary ranges from $30,000 to $50,000.

This largely depends on the size of the firm that employs you.

3. Freelance Copywriter

This is the last category of copywriters.

It is where legends make their mark and “rags to riches stories” abound.

You work for different firms depending on the availability of work.

The flow of work is not steady and you actively pursue gigs.

Hustling is the best term to describe what you do as a copywriter.

You work on building a reputation as a copywriter with good content.

The reputation you build attracts more work for you as a copywriter.

The jobs that a freelance copywriter works on vary, starting from as little as $800 per job to $10,000.

Your main job is the creation of a rich content that converts to sales.

In some jobs, your work is improving the rate of conversion of clients to sales.

Some freelance copywriters earn salaries that hit a high of $1,000,000 per year.

These are the high-fliers while those who are less successful, earning $20,000 are the norm.

Freelance copywriters fall into three classes according to their earnings.

High-end copywriters earn the minimum of $300,000 per year.

Medium-class copywriters manage a respectable $150,000 per year.

The low-end copywriters earn less than $20,000 per year.

Most copywriters start at the low-end.

A small minority move on and work their way up to the big bucks.

How to Get Work as a Copywriter

Getting work as a copywriter involves careful planning and effort.

Plenty of effort is needed in the beginning.

This pays off later on as you get better copywriting gigs.

Focus on getting results for your clients as a copywriter and not the money.

The money comes later if your work is good.

Satisfied clients pay more and they will also refer you to new clients.

Make sure you maintain a high presence on the internet.

Below are my seven top ways to get work as a freelance copywriter.

Step 1: Do a Market Research

Study the market to understand what clients need.

Let this be your starting point and get to know what the current market trend is and where it is moving.

It is useless to offer copywriting services that are past their sell-by-date.

To drive this point home, a practical example from real life will suffice.

Imagine a salesman knocking on your door one day.

The deal he proposes is too good to reject.

The sales pitch is excellent and the salesperson is friendly.

He is well versed with the product.

The problem is that the product they offer is considered obsolete.

The product he offers is the old box TV that has gone out of fashion.

He offers you the biggest box TV for a fraction of the latest TVs in the market.

The package includes excellent after-sales services and two years warranty.

This is the same as a copywriter that offers clients services that are not current.

Your pitch is good, but you offer services that add no value to the client.

Find out what the clients want.

Then send your samples according to their needs.

It is advisable not to write a bunch of samples and email your potential client.

Get to know what they want before emailing your samples.

As a beginner, search for copywriting jobs which require no technical knowledge.

Pursue jobs that are small and which you can deliver within hours or days.

Avoid copywriting gigs that are long-term in nature as you start out.

Step 2: Locate Sites That Provide Work for Copywriters

This may sound easy and straightforward but turns out to be easier said than done.

As a beginner, it would be a waste of time to follow the path advertised by many gurus as the way to success.

You have read about cold and warm pitching as well as networking.

There is the possibility that you have been told that starting a blog will attract copywriting clients.

We should not forget your social media space as a marketing point as a copywriter.

All of the above have some element of success but not always.

For a freelance copywriter who is starting out, I advice that you visit sites such as Upwork.

You are sure to get work once you register with them.

This is better than spending hours trying to get clients who are not sure if you can deliver quality content.

Upwork is one among many sites that a novice copywriter can visit to look for work.

Such sites have a steady flow of work from thousands of clients who do not have the time to look for individual copywriters to hire.

It also gives you as a beginner the ability to improve your copywriting skills.

You will start to earn and grow your client base from there.

Step 3: Aim to Impress and Produce Results

Most clients have used the services of one or more copywriters before they met you.

The previous services they received may not have impressed them much.

At the back of the clients’ mind, they may wonder if you offer anything that is new and fresh.

They will probably hire you to re-write content that was created by another copywriter.

In effect, you will be correcting the mistakes of the first copywriter who left the client unsatisfied.

Rise to the challenge and offer services that sweep your client off their feet.

Strive to create content that is refreshing and new.

Try to be original and put your signature on the content that you create.

Your work will identify you and will become your badge of distinction.

Satisfied clients will offer you work in the future and may refer you to new clients.

As a novice copywriter, it is good to approach each task with fervor and vigor as if it will be your last.

Since there is high competition with other copywriters, your first job will make or break you.

It is highly unlikely that the unsatisfied client will give you a second chance.

Impress them the first time and wow them.

A good copywriter works to leave a good image.

Make sure you get results that will add benefit to them.

Step 4: Increase Your Popularity on the Web

Increasing your popularity as a copywriter means several things.

It does not mean you start posting photos of yourself on the beach.

It is not a popularity contest based on looks.

Neither does it boil down to witty posts on social media but is based on the content of work you do.

That is how a copywriter builds popularity which then translates into credibility.

Create content that is unique to your clients and they begin to notice that you deliver excellent content.

Good content will attract clients and make you popular.

The high competition from competing clients will raise the minimum pay you can accept.

Start out as a copywriter that can work on most content that your clients will bring aboard.

Once you can handle copywriting jobs that are general, upgrade to the next level in copywriting.

This requires you to identify an area to specialize in.

One such area where you may specialize is marketing emails or any other copywriting service.

Learn and expand your knowledge about the niche service that you will offer to your client.

Read as much material as you can about your area of specialty.

Many online resources are available from which you can increase your knowledge for free.

Follow up on the success stories of similar copywriters in your sphere of excellence.

Learn from their success and apply whatever you find applies to you.

If possible, try to be the best copywriter in that area where you feel you can excel.

Step 5: Create a Portfolio

You are probably thinking that I am talking about your CV.

Creating a portfolio is different from writing your CV in several ways.

While your CV is useful in showing your educational background, the portfolio shows real samples of copywriting work.

If you do not have any samples, you can create one in the following easy steps.

Let me start by suggesting that you create a sample similar to what a client may actually want.

You can write about “The best places to find good food in New York,” if you reside there.

If the potential client wants content for a blog post, create content similar to what they want.

The client may want a post on the 5 best ways to get a date in New York.

You can write on the best 3 ways to get a date in Miami.

Remember to keep it short and to the point within the range of 200-400 words.

The key word here is quality and not quantity.

Step 6: Perseverance

This is not actually a step per se but a way of life for a copywriter who has just started out.

To be a successful copywriter takes time and effort.

Do not be in a rush to start earning big money without investing in the time to grow.

As the saying goes, all good things come to those who wait.

Nurture the virtue of patience and learn to persevere.

Your first earnings may look like a pittance, but you will earn more as time goes by.

Work on your skills religiously and practice your copywriting skills daily.

Initially, your clients may offer trial jobs.

Accept the days of small beginnings and start from there.

This is with the promise to pay better in the future if they are satisfied.

Take every opportunity that comes your way and hone in your copywriting abilities.

With the passage of time, the number of clients willing to give you work will increase.

This goes in tandem with the rates that you can negotiate for your copywriting work.

Step 7: Go Forth and Start Earning

In conclusion, I now send you out there to start copywriting and begin to earn.

All the above information that I have shared with you is enough to start copywriting immediately.

Make the decision that you will be a doer and a go-getter.

No excuse and reason should hold you back, including fear.

In case you are not sure of anything, time to read through this post again.

And remember to bookmark it for future reference when you want to refresh your knowledge.

Better still, consider sharing this post with your friends who may be considering copywriting as a career.

What Is a Non-Recourse Loan and the Provisions Protecting the Lender?

The non-recourse loan has provisions that protect both the lender and borrower.

It is one of the many loans given by banking and financial institutions.

There are several other types of financing that are available to borrowers.

These are loans from formal and mainstream institutions such as banks.

One can also get a loan from informal places such as loan sharks and pawnshops.

Basically, all loans that are available boil down to either recourse or non-recourse loans.

You as the lender are keen to know how you can protect your money.

In most cases where the borrower fails to repay a loan, it is not pre-planned.

Unplanned circumstances and events may occur which the borrower had not foreseen.

Such events may hinder their ability to repay the loan.

What Is a Non-Recourse Loan?

A non-recourse loan restricts the course of action that a lender may take.

The non-recourse loan is secure using different types of securities.

These may include properties and stocks.

Non-Recourse LoanThe lender can sell the security held in case the borrower defaults.

The borrower does not incur any personal loss.

It also extends to partnerships or limited liability firms that have taken loans.

The directors of the partnership are free from having their personal assets attached.

This in effect means that the lender cannot touch other assets such as their homes and bank balances.

This is the situation even in the case where the full value of the loan is not fully recovered.

In reality, the lender will be holding the short end of the stick in such a loan.

On the other hand, the borrower goes home free.

There is no possibility of further loss.

Ponzi Schemes and Non-Recourse Loans

Ponzi schemes made the headlines a few years ago.

It was mostly for the wrong reasons.

Most of the Ponzi schemes revolve around the issuance of non-recourse loans.

Non-recourse loans have the potential to be misused in Ponzi schemes as is explained below.

The promoters of such Ponzi schemes offer loans that include the clause to walk away in case the borrower defaulted.

It starts with the unsuspecting borrower depositing a security which is usually a stock with the “Ponzi lender.”

The “lender” would then take the stock and sell it in the market for the maximum value that it could fetch.

The borrower would then get up to 80% of the proceeds while the “Ponzi lender” keeps 20%.

The interest rates are quite high and average at 7%.

This makes it difficult for most borrowers to repay the loan.

Since there is a provision to abandon the loan, most borrowers will do exactly that.

This is ideal for the Ponzi promoter.

There is no intention in the first place to give back the collateral that secures the loan.

The crooked lender does not intend to give back the security to the borrower.

The lender is simply unable to buy back all the shares that they sold.

The borrower in this instance will suffer a loss.

From the above, it is important that any potential borrower takes time to check the credibility of the lender.

It is advisable that you should confirm if the lender is genuine or not.

What Happens in a Typical Recourse Loan So That We Can Clearly Differentiate the Two?

A typical recourse loan involves two parties: the lender and the borrower.

They agree to sign the loan agreement with specific terms.

One of the terms is that the lender may pursue and attach other assets in order to recover the value of the loan.

This is beside the primary asset, security or collateral against the loan.

The option is to pursue other assets that include vehicles, bank balances, and stocks.

The lender in effect is telling the borrower that the full value of the loan given must be recovered.

This includes the principal sum plus the interest on the loan that disbursed.

Eventually, the lender will recover all their money.

The lender has to operate within legal limits.

This means not using illegal means to recover the loan.

It may involve filing a lawsuit in a court.

This is done so that the court will issue orders that aid in the recovery of the loan.

The loan sharks are well known to use means that are not lawful.

Which Loan Attracts Higher Interest Rates?

The non-recourse loan typically attracts interest rates which are quite high.

This is in comparison to non-recourse loans which have lower interest rates.

The risk is higher since the lender has fewer options to recover the loan.

The higher interest rates act more like a compensatory mechanism.

This is helpful to the lender so that they reduce the risk of losing their money.

The lender will mostly impose interest rates that are higher, knowing in advance that the loan could turn out to be a bad loan.

Loans disbursed as “recourse” have lower interest rates since they are less risky to the lender.

Who Takes out Non-Recourse Loans and Why?

The non-recourse loan is popular with real estate investors.

The loan limits the personal liability of the real estate investor in case the project goes belly-up.

The lender will loan against the real estate assets.

The lender considers the borrower’s past performance before the loan is given.

The loan may be for a new housing project.

Alternatively, the loan may  be for repairing property already constructed.

In most cases, the investor does not plan to default on the non-recourse loan.

Events beyond their control may overtake them.

Another group of persons that prefer non-recourse loans is those with a poor credit rating.

They may opt to secure a loan with a higher interest rate with fewer questions asked.

This second group of borrowers would mostly obtain such a loan from a private lender.

The non-recourse loan makes it easier for a person who otherwise does not qualify for a loan in the mainstream banking institutions.

How Does the Element of Taxation Work out in Non-Recourse Loans?

When a property is being disposed in order to recover a recourse loan, it is assumed that the fair market value will be realized.

That is the assumption of the taxman.

The tax authority assumes that the lender gains nothing less than the fair market value when selling the asset used as the security.

Accordingly, this assumption forms the basis of the tax calculation.

In recourse loans, the lender may choose to forgive and write off a certain amount of the loan.

In the eye of the taxman, the ordinary income is liable to taxation.

When they suffer a personal loss in the recovery of the loan, the borrower may deduct it from their income when filing their tax returns.

The taxman considers non-recourse loans differently.

The lender is assumed not to sell the asset for the fair market value but rather to make-up for the shortfall of the loan balance.

Since there is no debt forgiveness in non-recourse loans, the borrower stands to lose since they cannot qualify for forgiveness by the lender.

The borrower who took out a non-recourse loan cannot qualify for capital gains or loss for the purposes of taxation.

How Is a Non-Recourse Loan Underwritten?

The non-recourse loan requires sound financial skills for the lender who is issuing the loan.

It involves the lender using financial models that help in structuring the loan.

The lender should adequately understand the underlying technical issues in the loan.

Most non-recourse loans are long-term in nature.

The loan may span a minimum of five years to ten years.

The capital required for a non-recourse loan is typically high.

It may run in the millions of dollars.

The projected income streams are uncertain in non-recourse loans.

What Are the Loan-To-Value Ratios of Non-Recourse Loans?

A loan-to-value ratio is a number used by lenders in setting the maximum loan amount that a borrower may receive.

It is analyzed by looking at the loan amount against the value of the security offered.

Securities such as stocks can have loan-to-value ratios that may reach a maximum of 90%.

This means that the borrower may borrow up to 90% of the value of the stock used as the security.

In non-recourse loans, the normal loan-to-value ratio is 50-60%.

This lower ratio is used with the consideration that there is a higher risk of non-repayment.

It is therefore intended to protect the lender in case the borrower defaults on repaying the loan.

6 Provisions That Protect the Lender in Non-Recourse Loans

These are: filing for bankruptcy, misrepresentation and failure to maintain insurance.

Others include the failure to pay taxes on property, environmental contamination, and bad-faith delaying tactics.

The six provisions that protect the lender in non-recourse loans collectively are referred to as “bad boy guarantees.”

Another term that is commonly used is “carve out” provisions.

They protect the lender in cases that involve fraud.

The provisions mentioned above afford protection to the lender when issuing non-recourse loans.

The following is an in-depth look at each individual item.

1) Filing for Bankruptcy

When the borrower files for bankruptcy voluntarily, the law steps in to help the lender.

It gives the lender the power to ignore the non-recourse clauses and pursue the borrower individually.

The law ensures that the lender receives the treatment that is equal to that of the borrower.

This protects the lender in the instance where the security offered is part of the valuation in the bankruptcy proceedings.

The lender in such a situation is able to seek recovery of the owed loan amount from the borrower at the personal level.

2) Misrepresentation and Fraud

The borrower is also liable personally, if it is discovered that there was willful perversion of facts when they were securing the loan.

The extent of the fraud may include the material misrepresentation when processing the loan or during the loan payment.

The information withheld will significantly alter the terms of the non-recourse loan.

In such a case, the lender can claim for the full amount of the loan.

This would be similar to altering the loan to the terms of a recourse loan.

3) Failure to Pay Taxes on Property

In the event that the borrower has not been paying property taxes and does not disclose this information, the non-recourse loan is liable to become a recourse loan.

Ideally, the property should have no tax liability.

If the lender discovers it has a tax liability, the lender can pursue the borrower.

In such a situation, the lender cannot pass off the liability of the property tax to the new owner.

At the same time, paying the property tax would reduce the income that would accrue towards them.

It would reduce the amount expected in order to offset the loan.

This violation of not paying the property taxes changes the terms of the loan.

The lender can claim the extra amount that is liable as the property tax from the individual assets of the borrower.

The protection that accrued to the borrower in the non-recourse loan becomes null and void.

4) Failure to Maintain Insurance

The failure by the borrower to maintain insurance on the property can result in the non-recourse loan changing to become a recourse loan.

The borrower has to maintain insurance over the duration of the loan.

This is a stipulation that is common in most non-recourse loans.

The borrower in this case benefits by not paying the monthly premiums on the security that they offer.

The monies that the borrower saves are considered as additional income from the security.

When the lender is disposing such a property and discovers that the borrower did not maintain insurance, they may pursue the borrower to recover the monies.

This in effect means that the loan is no longer considered as being non-recourse.

5) Environmental Contamination

In the event that the borrower did not disclose to the lender that the property has environmental contamination, the non-recourse loan terms are void.

The contamination could have been newly discovered or could be a long-term problem.

This information materially affects the valuation of the property used to secure the non-recourse loan.

In some instances, the property could be condemned to being demolished by the local authorities.

Such an action would put the lender at the risk of loss.

The law allows the lender to take remedial action to recover the full value of the loan in such case.

The remedial action may extend to attaching other assets of the borrower.

These are assets that were not initially included in the terms of the non-recourse loan.

6) Bad-Faith Delaying Tactics

The interference by the borrower will change the terms of the loan.

This changes the status of the loan to that of a recourse loan.

This interference by the borrower is taken to be done in bad faith.

The borrower may institute actions that are basically delaying tactics.

This may apply to the foreclosure of a property.

This is done so that the lender is unable to recover the non-recourse loan.

The law, in this case, will side with the lender.

It allows the lender to pursue remedial action that is similar to that of recourse loans.

The law will treat the loan as being no longer non-recourse but as recourse.

The interference may be from the guarantor or the property owner.

The lender may find it harder to recover their money in such an instance.

This is due to the actions of the borrower which are malicious.

This is normally done in bad faith by the borrower.

It has the effect of making the terms of the non-recourse loan null and void.

Word of Advice in Conclusion

As we conclude, a word of advice is necessary.

As in any type of loan, always start by considering all the options available.

If possible, seek advice from a financial planner, a broker or a bank.

The failure to plan ahead is disastrous for the borrower and lender when taking and giving out a loan.

The second thing that a borrower should do when considering a non-recourse loan is to undertake due diligence on the financial institution offering the loan.

Ensure that the institution is legitimate and bona fide.

The third important thing to do is to understand the terms of the non-recourse loan fully.

This applies to both the lender and the borrower.

Make sure that you understand the terms and provisions of the loan before signing on the dotted line.

This is important in protecting you as the lender or borrower in a non-recourse loan.