A limited recourse security agreement (LRSA) is a type of financial contract that serves to protect a lender`s interests in a loan agreement. This legal document typically outlines the terms and conditions of the loan agreement, including the borrower`s obligations, the lender`s rights, and the collateral used to secure the loan.

The key feature of an LRSA is that it limits the recourse that the lender has against the borrower in the event of a default on the loan. In other words, the lender can only go after the collateral that was pledged to secure the loan, rather than the borrower`s other assets. This provides some protection for the borrower, as they can avoid personal liability for the loan.

Another important aspect of an LRSA is that it often includes provisions that limit the lender`s ability to take certain actions in the event of a default. For example, the lender may be required to give notice to the borrower before taking any enforcement action against the collateral. These provisions can help to ensure that the borrower has some time to rectify the default before losing the collateral.

There are a few different types of collateral that can be used to secure an LRSA. Common examples include real estate, equipment, and accounts receivable. In some cases, the collateral may need to be appraised by a third-party expert to determine its value.

It`s important to note that an LRSA is not always a preferred option for lenders. Because the lender`s recourse is limited, they may charge a higher interest rate or require more collateral than they would for a traditional loan. Additionally, an LRSA may not be available for all types of loans or borrowers.

In summary, a limited recourse security agreement is a legal document used to protect the interests of lenders in a loan agreement. This type of agreement limits the lender`s recourse against the borrower in the event of a default, and typically includes provisions that regulate the lender`s actions and the collateral that secures the loan. While an LRSA may not be the best option for all borrowers, it can provide some protection for those who are seeking funding.