Compare the cost and scope of recourse with the proposed loan terms. Review guarantees, release conditions and continuing obligations with counsel before accepting them.
What recourse really means
Recourse: lender can pursue the borrower (and any guarantors) personally if the loan defaults and the property doesn't fully repay it. The personal balance sheet is at risk.
Non-recourse: lender's only remedy is the property itself and its cash flows, except for bad-boy carve-outs (fraud, misappropriation, unauthorized transfers) which trigger full personal liability.
Partial recourse: a defined percentage of the loan (e.g., 25% or 50%) is recourse to the borrower, with the remainder non-recourse. Often structured to burn off, e.g., 50% recourse during construction, dropping to 25% at conversion to perm and 0% at stabilization milestone.
Pricing trade-off
Worth it when: the borrower has the balance sheet to comfortably absorb the recourse risk AND the pricing improvement is material to deal economics. Typically true on smaller-balance bank deals where the borrower has deep equity in the deal.
Not worth it when: the borrower can't comfortably absorb the recourse exposure OR the pricing improvement is small. Typically true on institutional perm where life co / CMBS are quoting non-recourse at competitive pricing.
By lender category
Agency multifamily, life co, CMBS perm: non-recourse standard. Insist on it.
Bank perm: variable. Many regional banks offer non-recourse on stabilized deals over $5M; below that, partial recourse is common. National banks more often non-recourse.
Bank construction: typically partial recourse (25% to 100%) during construction, with burn-off provisions triggered by completion + lease-up + DSCR test. Non-recourse construction available from some banks for top-tier sponsors.
Debt fund bridge: typically non-recourse with bad-boy carve-outs and (on construction) completion guarantee. Full recourse is rare from institutional debt funds.
SBA 504/7(a): full recourse with personal guaranty from owners of 20%+ of operating company. Non-negotiable.
Burn-off provisions
On bank construction loans with partial recourse, negotiate burn-off triggers tied to objective milestones: TCO/CO, achievement of debt-yield/DSCR threshold for 2 to 3 consecutive months at stabilization, or take-out by permanent loan.
The recourse burn-off is one of the most-negotiated items on bank construction. The default lender position is recourse-stays-on; the borrower position is structured burn-off. The right answer is somewhere in the middle, typically partial reduction at completion, further reduction at stabilization, full release at permanent take-out.
Bad-boy carve-outs (universal on non-recourse)
Even non-recourse loans have carve-outs that pierce the non-recourse on specified borrower behaviors: fraud, misappropriation of property cash flows or insurance/condemnation proceeds, unauthorized transfer of the property or controlling equity, voluntary bankruptcy filing, failure to maintain SPE status.
Negotiate the wording. Most institutional loans permit loss-amount-only recourse for many carve-outs (you owe the actual loss caused by the carve-out behavior, not the entire loan). Reserve full-loan recourse only for the most egregious behaviors (fraud, willful misrepresentation).
Frequently asked questions
Will lenders quote non-recourse on bank perm?
Many regional banks will on stabilized deals over $5M with strong sponsor and reasonable leverage. Below $5M and below institutional sponsor profile, partial recourse becomes more common. Always ask for non-recourse first.
Are bad-boy carve-outs negotiable?
Yes, on the wording and on whether each carve-out triggers full-loan recourse or loss-amount-only. The actual list of carve-outs is more standardized; the consequences are more negotiable.
Can my LLC take a non-recourse loan if I personally guarantee?
If you personally guarantee the loan, the loan is recourse to you personally to the extent of the guaranty. The non-recourse character of the entity-level loan is broken by the guaranty.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) · Board of Governors of the Federal Reserve System · 2026-Q1