What Is a Non-Recourse Loan? | Business Lending Glossary
Non-recourse loan definition — how lender liability is limited to collateral only, when this structure applies, and what it means for business borrowers.
Definition
A loan in which the lender's only remedy upon default is to seize the specified collateral — the lender cannot pursue the borrower's other assets or personal assets.
Explanation
In a non-recourse structure, the collateral itself is the lender's sole source of repayment if the borrower defaults. This contrasts with full-recourse loans, where lenders can sue to collect from any of the borrower's assets. Non-recourse loans are most common in large commercial real estate transactions and certain equipment financing scenarios, and typically come with stricter underwriting and lower LTV requirements.
Example
A real estate investor takes a $5M non-recourse commercial mortgage; if the property loses value and the borrower walks away, the lender can foreclose on the property but cannot pursue the investor's other holdings or personal bank accounts.
Why It Matters
Non-recourse financing limits personal liability for investors but commands higher rates and stricter terms because the lender has reduced legal recourse in a default scenario.
Frequently asked questions
Are SBA loans recourse or non-recourse?
SBA loans are full recourse and require personal guarantees from all owners with 20% or more equity, making them recourse to both the business and individual guarantors.
