Recourse loan
A recourse loan lets the lender collect any shortfall from the borrower (and any guarantors) beyond the collateral. In a non-recourse loan, the lender’s recovery is limited to the collateral.
How recourse works
If a recourse loan defaults and the collateral sells for less than what is owed, the lender can pursue the borrower’s other assets for the difference, subject to state law on deficiency judgments. A non-recourse loan limits recovery to the collateral, usually with carve-outs that restore recourse for fraud, waste or other specified acts.
Recourse shows up on both sides of a private lender’s business:
- Your borrowers. Business-purpose bridge and fix-and-flip loans are commonly made to entities with personal guarantees from the investors behind them.
- Your funding. A warehouse line or credit facility is normally full recourse to the lending company, often backed by owner guarantees. A whole-loan sale may also carry recourse through repurchase obligations if the seller breaches its representations and warranties.
Why it matters to a private lender
Recourse decides who absorbs a loss. On a warehouse line, a defaulted loan is still your debt: you repay the advance whether or not the borrower pays you. When a capital partner funds the whole loan at closing, the credit risk sits with that partner, but your representations about the loan file still matter.
Example
Hypothetical. A $400,000 loan on a line with a $300,000 advance defaults and sells for $250,000. On a recourse line the lending company still owes the provider the $50,000 shortfall plus interest, and may also pursue the borrower’s guarantor.
Compare structures in capital providers for private lenders.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.