Financing fuels the engine of the massive $27 trillion US commercial real estate market.
These loans drive economic growth and shape the built environment, funding everything from office towers and logistics hubs to hospitals, housing, and retail centers.
Not all commercial loan types are created equal. Some tie your entire personal portfolio to the debt and others limit the lender’s claim to the property itself.
This core difference between recourse vs. non-recourse loans takes on even greater weight in a CRE environment where double defaults are rising — it directly determines how much personal financial exposure you face if a project fails or the broader economy turns.
As of December 2024, the overall delinquency rate for commercial mortgage-backed securities (CMBS) rose to 6.57%, with the office sector experiencing a delinquency rate of 11.01%.
And as of February 2025, the total commercial real estate debt in the US increased to $3.01 trillion.
Knowing the mechanics behind recourse and non-recourse commercial real estate loan options will help you approach each investment with a clear strategy.
Understanding borrower liability in CRE financing and analyzing how different liability structures affect your investments lets you build a stronger defense against potential losses.
This guide will walk you through the key differences, benefits, and risks of both loan types.
By the end, you’ll be able to choose financing terms that match your goals and risk appetite in a sector that rewards precision and foresight.
What is a recourse loan?
A recourse loan holds you personally responsible for repaying the debt, even if selling the property after foreclosure doesn’t cover the full balance.
If you default, the lender can pursue your personal assets — such as your bank accounts, investments, or even personal property — to recover what’s owed. Your personal guarantee gives the lender added security beyond the real estate itself.
Lenders often use recourse loans in several cases:
- Smaller commercial real estate investors: If a new CRE investor is purchasing their first retail strip center or a small apartment building without an extensive track record, lenders may demand a personal guarantee. Without a broad portfolio to back the loan, the borrower’s personal assets become the fallback security.
- Construction loans: Projects that are still in the development phase — like a hotel under construction or a mixed-use project without signed tenants — look riskier to lenders because they aren’t yet generating income. Lenders often require full recourse during this stage to protect themselves until the project stabilizes or reaches a specific leasing threshold.
- Riskier or unproven projects: Properties in secondary markets, repositioning plays (such as converting an old office building into residential units), and brand-new business models without operating history usually require recourse terms. The higher the perceived risk, the likelier the lender is to seek a personal guarantee to recover potential losses.
One advantage of recourse loans is that they often come with lower interest rates than non-recourse loans. Since borrowers take on more personal risk, lenders can offer better loan terms.
What is a non-recourse Loan?
In contrast, a non-recourse loan limits your personal liability.
If you default, the lender’s recovery usually stops at the collateral property itself.
They cannot pursue your other assets — like your personal savings, investments, or personal property — to cover any remaining debt after a foreclosure sale falls short.
Lenders typically offer non-recourse loans in specific situations:
- Large commercial real estate projects: High-value properties such as office towers in major metros and large logistics hubs often qualify for non-recourse financing. In these cases, the asset itself — such as a 500,000-square-foot distribution center leased to major tenants, for example — provides enough collateral to satisfy the lender’s risk requirements.
- Stabilized assets: Properties with strong and predictable income streams stand a much better chance of securing non-recourse terms. Examples include a fully leased Class A office building in a top-tier market or a multifamily complex with 95% occupancy and long-term rental contracts. The consistent cash flow such properties generate lowers the lender’s perceived risk.
- Experienced borrowers: Institutional investors, large private equity firms, and REITs with extensive portfolios often have the negotiating power to secure non-recourse loans. A firm that successfully owns and operates a portfolio of stabilized industrial parks, for example, brings enough credibility to shift more risk onto the lender.
Because lenders take on more risk with non-recourse loans, they apply stricter underwriting standards.
Expect them to scrutinize the property’s cash flow, location, and long-term value potential. They will also look closely into the borrower’s experience in managing similar assets.
Notably, non-recourse loans typically carry higher interest rates to offset the limited recovery options available to lenders.
Key differences between recourse and non-recourse loans
To further clarify the distinctions, here’s a side-by-side comparison:
Let’s illustrate the difference using a simplified example.
Imagine two investors, each defaulting on a $5 million loan secured by commercial property.
Investor A signed a recourse loan. After foreclosure, the property sells for $4 million.
Investor A remains personally responsible for the $1 million shortfall, which means that the lender can pursue their personal bank accounts, investments, or other assets to recover the difference.
Investor B secured a non-recourse loan. After the same $4 million foreclosure sale, Investor B’s liability typically ends. The lender absorbs the $1 million loss.
Important: Bad boy carve-outs
Beyond the structural differences we already talked about, there is a critical nuance with non-recourse loans: “bad boy carve-outs.”
Even if your loan is non-recourse, certain actions can void that protection and make you personally responsible for the entire debt. Common carve-outs include:
- Submitting false or misleading information during the loan process (fraud or misrepresentation)
- Using rental income or property revenues for personal expenses instead of property obligations (misappropriation of funds)
- Filing for bankruptcy specifically to avoid repayment responsibilities (voluntary bankruptcy filing)
- Selling or transferring the property without lender consent (unauthorized transfer of ownership)
- Failing to disclose or remediate known environmental hazards on the property (environmental indemnities)
Lenders use these provisions to protect themselves against misconduct, so non-recourse status does not shield borrowers who act illegally or unethically.
This example highlights just how much the loan structure can influence your personal financial risk in a default scenario.
Pros and cons of each loan type
Recourse vs. non-recourse loan: What to choose and when
There is no such thing as a one-size-fits-all solution when it comes to commercial loan types.
The ‘best’ financing for your project depends on your specific profile as well as the deal’s structure and how much risk you’re willing to accept. Here’s what to consider:
- If you’re a smaller investor or have limited financial history, you will likely find recourse loans easier to secure. But if you have a substantial portfolio or institutional backing, you might prioritize the asset protection offered by non-recourse financing.
- Simpler and smaller deals — like a single retail building or a modest multifamily project — are often financed with recourse loans. In contrast, large, multi-property portfolios or trophy assets are more likely to attract non-recourse terms.
- If you want to shield your personal wealth from potential losses, non-recourse loans offer stronger protection — even if it means accepting a higher interest rate.
- Development projects, properties in lease-up, or assets with uncertain cash flow (like a newly-built property without an established tenant or customer base) will usually require recourse financing. Meanwhile, fully stabilized income-generating properties (like a fully leased office building) are better candidates for non-recourse structures.
- Experienced borrowers with strong financials and a history of successful CRE projects can often push for non-recourse terms.
It’s always prudent to talk to private lenders, mortgage brokers, and CRE financing advisors before you commit to anything.
They can help you assess the market, understand borrower liability in CRE financing, negotiate better terms, and choose a loan structure that protects your broader investment strategy.
Spotlight: Are CRE bridge loans recourse or non-recourse?
Most commercial bridge loans are non-recourse, but it depends on the lender and the deal structure.
In many cases, bridge lenders focus primarily on the property’s cash flow rather than the borrower’s personal guarantee.
This setup limits your personal liability — meaning if the project fails, the lender’s recovery is generally limited to the asset itself.
However, some bridge lenders may still require partial or full recourse terms depending on the risk profile.
Bridge loans are also known for their speed and flexibility.
Approval requirements are lighter than traditional permanent loans so you as an investor can close deals quickly — sometimes in less than a week.
As you know, that speed can be critical when competing for attractive properties that could slip away during a 30-day permanent loan underwriting process.
While bridge loans offer advantages, they aren’t risk-free. Higher interest rates and shorter loan terms can put pressure on your investment timeline if your exit strategy or refinance plan isn’t solid.
We offer bridge loans here at Private Capital Investors and can tailor the terms to your specific project. Don’t hesitate to reach out.
Spotlight: Are CMBS loans recourse or non-recourse?
CMBS loans are typically non-recourse, but this protection isn’t absolute. Most CMBS agreements include carve-outs — such as fraud, misrepresentation, or unauthorized transfer — that can trigger full personal liability.
Aside from its non-recourse structure, CMBS loans also offer scale.
Since loans are pooled and sold as bonds, the size of a CMBS loan isn’t capped by a bank’s balance sheet, therefore allowing investors to finance much larger properties or portfolios, particularly as commercial property values have risen.
CMBS lenders also often provide interest-only options, deferring principal payments during part or all of the loan term, which can improve cash flow early in ownership.
And finally, using CMBS financing can preserve your capacity with traditional banks.
Banks have borrower exposure limits. Funding larger projects through CMBS lets you keep your relationships and borrowing power intact for future opportunities that may need conventional financing.
Conclusion
Understanding the difference between recourse vs. non-recourse loans is absolutely critical when structuring CRE financing for your project.
The level of l borrower liability directly affects your risk exposure and should match your investment goals and risk tolerance, as well as the nature of the commercial property you’re financing.
There’s no single right answer. The best structure really depends on a mix of factors unique to your project and financial profile.
The key is to carefully weigh your options and work with experienced financing advisors who can present different commercial loan types and help you secure financing that both supports your strategy and protects your interests.
If you’re ready to move forward, Private Capital Investors is here to help. We offer a range of commercial real estate loan programs for properties from $2 million to $50 million across the country.
Our commercial real estate loan options include bridge loans, hard money loans, and stated income loans. We offer rates starting as low as 5.99%, and most applications receive approval within 24 to 48 hours. After approval, we can fund your loan in as little as 14 days.
Our approach emphasizes common-sense underwriting tailored to real-world conditions, backed by dedicated customer service that supports you through every step of the financing process. We provide nationwide lending across all major markets, giving you the flexibility to invest wherever the right opportunity appears. Call 972-865-6206 to get started or fill out our loan request form.
