Recourse vs Non-Recourse

Recourse vs Non-Recourse: What the Market Actually Requires

Recourse is a lender-type question before it is a negotiation. Banks and credit unions are the recourse lenders: full personal guarantees are their default, and partial recourse of 25% to 50% is what strong sponsorship negotiates. Agency, CMBS, and life company permanent loans are non-recourse as a matter of program design, with liability limited to the bad-boy carve-outs. Debt funds and bridge lenders are mostly non-recourse on standard business plans but frequently require completion guarantees on heavy renovation and carve-out guarantees everywhere.

Construction is its own regime. Ground-up construction loans from banks almost always carry full recourse plus a completion guarantee, and the sophisticated ask is a burn-down: recourse steps down to 50%, then 25%, then zero as the project hits completion, stabilized occupancy, or a DSCR test. Guarantor financial covenants ride along with any recourse. Lenders typically want guarantor net worth at or above the loan amount and liquidity of around 10% of the loan, tested annually.

Negotiation angles that actually move: capping each guarantor's exposure at a several, not joint and several, share when there are multiple partners; burn-down triggers tied to objective tests rather than lender discretion; limiting completion guarantees to hard costs; and trading a modest rate premium for reduced recourse at banks that price the two as a menu. The classic borrower mistake is fixating on the recourse label while ignoring the carve-outs. A non-recourse loan with aggressive carve-out language can be more dangerous than a capped 25% recourse loan, because carve-out liability is uncapped and springs on events partly outside the sponsor's control.

Why It Matters for Your Loan

Recourse determines whether a failed deal costs you the property or the property plus your balance sheet. It also shapes which capital sources you should approach at all: sponsors unwilling to sign personally route to agency, CMBS, life company, and debt fund executions, and accept the pricing and flexibility tradeoffs that come with them. Commercial Lending Solutions matches sponsors to lenders whose recourse posture fits, and negotiates burn-downs, caps, and several liability where guarantees are unavoidable.