This is a debt that is secured by a security interest in collateral but for which the lender has limited claims against the borrower in the event of a default. If the borrower defaults, the lender can exercise its rights with respect to the collateral and no other assets of the borrower. The borrower is not personally liable for any shortfall between the amount of the debt and the amount realized on the collateral.

In the context of a project financing, the lenders look primarily to the project company's revenue, property, and assets to repay the loans. In these cases, the liability of the project company's equity holders is limited to their equity in the project company and any other limited support they may have been required to give to the project company.

For more information, see Practice Notes, Project Finance: Overview and Advantages and Disadvantages of Project Financing.