Recourse vs. Non-Recourse Loans: A Clear Guide for Real Estate Investors

In commercial real estate, understanding how a loan is structured is just as important as securing the financing itself. One of the most frequently misunderstood topics is the difference between recourse and non-recourse loans—a detail that can have serious implications in the event of a default.

This article breaks down the key differences between these two loan types, when each is typically used, and what borrowers should keep in mind when evaluating their financing options.

What Is a Recourse Loan?

A recourse loan gives the lender the right to pursue the borrower personally if the collateral—usually the property—isn’t enough to repay the debt in a default situation. In other words, if the lender forecloses and sells the property but doesn’t fully recover the loan balance, they can seek the remaining amount from the borrower’s personal assets.

Recourse loans are common in situations where:

• The borrower is using an entity (like an LLC) to hold the property
• The property has a higher loan-to-value (LTV) ratio
• The borrower has less experience or limited financial backing

Because these loans carry more personal risk for the borrower, they’re often used in smaller-scale or higher-risk projects where the lender wants an additional layer of security.

What Is a Non-Recourse Loan?

A non-recourse loan, by contrast, limits the lender’s ability to collect beyond the value of the property. If the borrower defaults, the lender can only recover what they can from selling the property. The borrower’s personal assets are not at risk—unless specific exceptions apply.

Non-recourse loans are more likely to be offered when:

• The borrower has a strong financial profile
• The property has significant equity or a low LTV
• The asset is in a desirable market with stable income
• The borrower has a successful track record in similar projects

However, even non-recourse loans often include carve-out provisions, sometimes referred to as “bad boy guarantees.” These provisions allow the lender to pursue personal liability if the borrower commits certain acts, including:

• Fraud or intentional misrepresentation
• Gross negligence or willful misconduct
• Improper use of loan funds
• Failing to maintain property insurance or taxes

These carve-outs help ensure that even in non-recourse structures, borrowers are held accountable for serious misconduct.

When Is One Structure Better Than the Other?

There’s no universal “right” choice between recourse and non-recourse loans—it depends entirely on the deal, the borrower, and the lender’s risk tolerance.

Recourse loans tend to be easier to qualify for, especially for newer investors or higher-leverage deals, but they come with added personal liability. Non-recourse loans, on the other hand, are more appealing to seasoned investors and institutions who want to isolate risk—but they usually require stronger financials, experience, and more conservative deal structures.

Borrowers should assess:

• Their personal risk tolerance
• The financial health of the project
• Their experience level and track record
• The market and asset type

Understanding how these elements impact loan terms can help borrowers select the structure that best supports their investment goals.

Final Thoughts

Whether a loan is recourse or non-recourse isn’t just a technical detail—it directly affects a borrower’s financial exposure in the event of a default. By understanding the differences and knowing what lenders typically require for each, real estate investors can approach financing with greater clarity and confidence.

Before committing to any loan structure, it’s always worth consulting with a qualified advisor or attorney to fully understand your obligations and protections.

About TaliMar Financial 

TaliMar Financial is a private mortgage fund that offers investors the ability to participate in the growing market of private real estate debt. Since 2008, TaliMar Financial I has focused on providing real estate investors and operators with the capital they need to purchase, renovate, and operate residential and commercial properties. Our experienced executive team has funded over $450 million in short term debt secured on residential and commercial real estate primarily throughout Southern California and has returned over $40 million to investors in monthly distributions.