The quick read: Recourse vs non-recourse on a commercial real estate loan decides what you personally owe if the property fails to repay the debt. Full recourse puts the whole shortfall on you or your guarantor. Partial recourse caps it, for example at 25% of the loan. Non-recourse limits the lender to the property, except for carve-outs: some make you pay only the loss a bad act caused, and others spring the entire loan to full recourse. The OCC's examiner handbook lists the usual bad acts: fraud or misrepresentation, voluntary bankruptcy, environmental issues, unapproved liens, waste, prohibited transfers and diverted funds. Read every carve-out in your own guaranty, because the document, not the label, sets your exposure.
This page defines the liability spectrum. Which lender types offer non-recourse terms, and what they charge for them, is covered in which commercial lenders offer non-recourse loans, and how to negotiate a guaranty down is in do you have to sign a personal guarantee on a commercial real estate loan.
How do recourse and non-recourse differ on a commercial real estate loan?
Recourse and non-recourse differ in who pays the shortfall when a foreclosed property sells for less than the loan: with recourse the lender can pursue the borrower or guarantor for the rest, and with non-recourse it looks only to the collateral, unless a carve-out in the guaranty reopens your personal liability.
The OCC's Comptroller's Handbook on commercial real estate lending (Version 2.0) puts it plainly: on a nonrecourse loan "the lender may only look to the collateral for repayment, rather than the guarantor, in the event of default." In practice the spectrum has four points:
Full recourse: the borrower and guarantor owe any deficiency after the collateral is sold, up to the full balance plus interest and costs.
Partial recourse: the guaranty is capped at a fixed share or dollar amount of the loan; the handbook also names guarantees limited to interest only, construction completion only, partial principal, stepped-down amounts, or release during the term once conditions are met.
Non-recourse with loss carve-outs: you owe only the losses a defined bad act caused.
Non-recourse with springing carve-outs: a defined bad act converts the entire loan to full recourse.
Most non-recourse loans carry both kinds of carve-out at once. That is why "non-recourse" on a term sheet is the start of the analysis, not the end. The non-recourse glossary entry defines the term in one line; the rest of this page shows what it costs you when something goes wrong.
What do bad-boy carve-outs cover?
Bad-boy carve-outs cover acts within the borrower's control that hurt the lender's collateral or its claim, and the OCC's list is fraud or misrepresentation, voluntary bankruptcy, environmental issues, unapproved liens, waste of the collateral, prohibited transfers and diversion of funds, with some carve-outs commonly making the whole loan full recourse.
The handbook describes the guaranty on a nonrecourse loan as one "usually executed with carve-out provisions" that limit the guarantor's liability to losses from those acts, and adds that "commonly, there are certain carve-out provisions that cause the loan to become full recourse." A Federal Reserve staff paper makes the same point about conduit loans: CMBS loans are bankruptcy remote by design and non-recourse outside of "bad boy" clauses that trigger recourse on a particular bad act, such as fraud.
Which act sits in which tier is a drafting choice, and it varies from one loan document to the next. Map each carve-out in your own guaranty into one of two columns before you sign:
Loss-only carve-out: you repay the lender's actual loss from the act, such as the rents you diverted or the cost of a lien you allowed.
Springing carve-out: the act makes the whole balance your personal debt.
What to ask for: put the acts that are fully in your control, such as a voluntary bankruptcy filing or an unapproved transfer, in whichever column you can live with, and push acts that can happen without your intent, such as an involuntary lien or an environmental condition you did not cause, into the loss-only column. Ask whether an operating shortfall, where the property simply cannot pay its taxes or insurance, is a carve-out at all, because that turns a market loss into a personal one.
How much could you owe on a $5 million loan under each structure?
On a $5 million loan your personal exposure runs from nothing beyond a specific loss to the entire balance: a 25% partial guaranty caps you at $1.25 million, a loss carve-out costs only the loss the act caused, and a springing carve-out exposes all $5 million plus interest and enforcement costs.
The figures below are our arithmetic on an illustrative $5 million loan, not a quote or a real deal. Exposure means the most a guarantor can be asked to pay after the lender sells the collateral; the actual claim is the deficiency, capped by the guaranty.
Table: Personal exposure on an illustrative $5 million commercial loan, by recourse structure
| Structure | Who pays a shortfall | What triggers personal liability | Most you could owe |
|---|---|---|---|
| Structure Full recourse | Who pays a shortfall Borrower and guarantor | What triggers personal liability Any default with a deficiency | Most you could owe Up to $5,000,000 plus interest and costs |
| Structure 25% partial recourse | Who pays a shortfall Guarantor, up to the cap | What triggers personal liability Any default with a deficiency | Most you could owe Up to $1,250,000 |
| Structure Non-recourse, loss carve-out | Who pays a shortfall Guarantor, for the loss only | What triggers personal liability A listed bad act, such as diverted rents | Most you could owe The loss that act caused |
| Structure Non-recourse, springing carve-out | Who pays a shortfall Guarantor, for everything | What triggers personal liability A listed springing act | Most you could owe Up to $5,000,000 plus interest and costs |
| Structure SBA loan, 20% or larger owner | Who pays a shortfall Each owner holding at least 20% | What triggers personal liability Default on the guaranteed loan | Most you could owe Up to the loan balance, unless the guaranty is limited |
Walk one default through the table. Suppose the lender forecloses and the property sells for $3.8 million against a $5 million balance, leaving a $1.2 million shortfall before costs. Under full recourse you owe the $1.2 million plus costs. Under the 25% guaranty you also owe about $1.2 million, because the shortfall sits below the $1.25 million cap; the cap only helps once losses exceed it. Under a clean non-recourse loan you owe nothing. If you had diverted $150,000 of rents, a loss carve-out costs you that $150,000; if the guaranty made the same act a springing event, you owe the full $1.2 million deficiency plus costs.
The lesson is that a partial cap protects you in deep losses, while carve-out drafting protects you in shallow ones. Read both.
When is a personal guarantee required?
A personal guarantee is required whenever the lender's policy calls for recourse or guarantor support, and federal rules make it the default on SBA loans, where holders of at least a 20 percent ownership interest generally must guarantee the loan, while even non-recourse loans carry a carve-out guaranty from a creditworthy sponsor.
The SBA rule is in 13 CFR 120.160(a): "Holders of at least a 20 percent ownership interest generally must guarantee the loan," and the SBA or a delegated SBA lender may require other individuals or entities to give full or limited guarantees regardless of ownership share. An owner-occupant buying through SBA should therefore plan on a full guaranty, not negotiate for non-recourse.
Bank loans are set by bank policy. The OCC handbook tells examiners that a bank's lending policy should establish "limits on partial recourse or nonrecourse loans and requirements for guarantor support," and that examiners weigh whether a guarantor has both the willingness and the ability to support the credit. That is why a bank will ask for your personal financial statement and liquidity even on a property that cash flows.
A non-recourse loan still needs a guarantor: someone has to sign the carve-out guaranty, and the lender sizes that person's net worth and liquidity against the springing exposure. On a $5 million loan the springing exposure is the full $5 million, so expect the lender to underwrite the guarantor as though it might be called.
Why do bank loans usually come with recourse?
Bank loans usually come with recourse because banks treat it as a substitute for equity and workout leverage, and a Federal Reserve staff study of stress-test data from U.S. banks with $100 billion or more in assets (loans of $1 million or more, 2012 to 2020) found 78 percent of their loans on stabilized properties had full or partial recourse.
Other commercial real estate lenders, the same paper notes, overwhelmingly lend non-recourse. The study, "Recourse as Shadow Equity" (Finance and Economics Discussion Series 2021-079, December 7, 2021), reported that recourse was less common by dollar volume: because recourse loans were much smaller on average, the recourse share fell to 45 percent on a value-weighted basis in that 2012 to 2020 large-bank sample. It varied by property type, from 82 percent of multifamily loans to around 66 percent of lodging loans, and by bank, from over 90 percent of CRE loans at the most recourse-heavy quintile of lenders to 14 percent at the least, in the same sample of banks with $100 billion or more in assets.
Recourse also changes what happens after a default. The same paper found recourse loans in that large-bank sample were half as likely to receive accommodation during the COVID-19 pandemic, and the modifications they did get carried a smaller payment reduction. A guaranty is therefore a negotiating position in a workout as much as a backstop at foreclosure.
What follows for an investor: a smaller loan from a bank is likely to come with recourse, and a larger stabilized loan from a CMBS, agency or life company source is likely to be non-recourse with carve-outs. The pricing and leverage trade between those two is laid out in which commercial lenders offer non-recourse loans, and the non-recourse loan page lists non-recourse loan programs.
How do you get a non-recourse commercial real estate loan placed?
You get a non-recourse commercial real estate loan placed by putting one complete file in front of the lender types that write non-recourse terms, then comparing their carve-out lists and guaranty caps side by side, because the recourse structure, not just the rate, decides your personal risk.
There are two ways to run that comparison, and the brokerage route comes first because it puts several lenders' recourse terms on the table at once.
- Brokerage route. YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors. Its software matches the deal against 20,000+ loan programs and typically returns 5–8 matches, so you can compare the recourse structure of each match before you choose. Its brokers then structure the request, negotiate the guaranty cap and the carve-out list on your side, and carry the deal toward closing. It is a 5-minute submit, with a median first offer in under an hour, from an institutional lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
- Direct route. Apply to one lender yourself. You get that lender's standard guaranty and carve-out form, and you repeat the file for every comparison you want.
Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Submit your deal and compare recourse terms
The bottom line
Recourse decides whether a failed property costs you only your equity or also your personal balance sheet. Full recourse exposes the whole shortfall, partial recourse caps it, and non-recourse limits the lender to the property except for carve-outs, some of which cost only the loss a bad act caused and some of which spring the entire loan to full recourse. Banks lean toward recourse; on SBA loans, owners of 20% or more generally must guarantee. Before you sign, sort every carve-out in your guaranty into loss-only or springing, and negotiate the ones you cannot fully control.