Understanding Recourse vs. Non-Recourse Loans

If you’re in the market for commercial real estate financing, you’ll likely come across the terms “recourse” and “non-recourse” loans. These are two types of loans that have significant differences and understanding them is crucial when making financing decisions.

Recourse Loans

Recourse loans are those where the borrower is personally liable for the debt. In other words, if the borrower defaults on the loan, the lender can go after the borrower’s personal assets to recover the outstanding balance. In most cases, recourse loans are secured by a personal guarantee from the borrower.

Non-Recourse Loans

Non-recourse loans, on the other hand, limit the lender’s ability to go after the borrower’s personal assets if the loan defaults. These loans are usually secured by the collateral of the property being financed. If the borrower defaults, the lender can only go after the property and not the borrower’s personal assets.

Pros and Cons of Recourse and Non-Recourse Loans

Recourse loans typically have lower interest rates and are easier to obtain than non-recourse loans because they provide lenders with an extra layer of protection. However, they come with greater risks for the borrower since they are personally liable for the debt. In contrast, non-recourse loans provide more protection for the borrower’s personal assets, but they typically come with higher interest rates and stricter lending requirements.

Which Loan Type is Right for You?

The choice between recourse and non-recourse loans depends on a variety of factors, including the borrower’s financial situation, the lender’s requirements and the type of property being financed. In general, recourse loans are more suitable for borrowers with strong financial standing and who are comfortable with taking on higher risks, while non-recourse loans are better for borrowers who want to limit their personal liability and have enough collateral to secure the loan.

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If you’re looking for a commercial real estate financing solution that fits your specific needs, GILKO CAPITAL can help. We specialize in providing customized mortgage and wealth solutions for real estate investors, developers, REITs, institutional borrowers, businesses and UHNW Canadian families. Contact us today to learn more about our tailored financing options.