A recourse loan is a loan that provides the personal guarantee of the person borrowing the money or the person(s) behind the entity borrowing the money. In the event of a default, the lender can seek financial damages from the borrower directly, so that if the investor does take a loss on the property it can go after the borrower individually for the balance of the money owed. This can include repossessing personal property, or even garnishing wages from a borrower’s bank account.

Sources:

• apartment.loans/posts/what-are-recourse-loans
• www.multifamily.loans/what-is-a-recourse-loan
• hud223a7.loan/glossary/recourse-loan

The main advantage of a recourse loan is that it can provide lenders with greater security. With a recourse loan, the borrower or borrowers personally guarantee the funding amount against their own assets. This ensures that should the borrower default on the loan, lenders can seek financial damages from the borrowers directly. Recourse loans can be beneficial to savvy borrowers since lenders will often view the personal guarantee as their confidence in repaying the loan amount, and are more willing to provide better terms on the note.

Sources:

• apartment.loans/posts/what-are-recourse-loans
• www.multifamily.loans/what-is-a-recourse-loan

The main disadvantages of a recourse loan are that the borrower or borrowers personally guarantee the funding amount against their own assets. This means that if the collateral is insufficient to cover the outstanding loan amount, a lender could attempt to recover losses by going after a borrower’s personal assets, including wages. Additionally, borrowers should be aware that certain activities, such as fraud or misrepresentation of financial strength, could trigger a bad boy carve-out, which would allow the lender to pursue recourse options.

Sources:

• www.commercialrealestate.loans/blog/is-non-recourse-financing-right-for-you
• apartment.loans/posts/what-are-recourse-loans
• www.multifamily.loans/apartment-finance-blog/recourse-vs-nonrecourse-loans

In order to obtain a recourse loan, borrowers must provide a personal guarantee of the loan amount against their own assets. This means that if the borrower defaults on the loan, lenders can seek financial damages from the borrowers directly. Additionally, borrowers should be aware that certain activities, such as fraud or misrepresentation of financial strength, could trigger a bad boy carve-out, which would allow the lender to pursue recourse options. Knowing the potential liabilities associated with a recourse loan is critical for any borrower looking to explore their commercial real estate finance options.

Recourse loans are typically offered by banks, bridge lenders, and construction lenders. These loans typically require the borrower to personally guarantee the loan amount against their own assets. This means that if the borrower defaults on the loan, the lender can seek financial damages from the borrower directly.

Recourse loans can be beneficial to savvy borrowers since lenders will often view the personal guarantee as their confidence in repaying the loan amount, and are more willing to provide better terms on the note.

Examples of recourse loans include:

• Bank loans
• Bridge loans
• Construction loans