What distinguishes a recourse loan from a non-recourse loan?

A recourse loan is characterized by the borrower being personally liable for the repayment of the debt in the event of a default. This means that if the borrower fails to repay the loan, the lender has the right to pursue the borrower’s personal assets beyond just the collateral that was provided for the loan. This personal guarantee provides the lender with added security, as they can reclaim funds through legal means if necessary.

In contrast, a non-recourse loan limits the lender's recovery options to the collateral pledged for the loan, meaning that the borrower is not personally liable beyond that collateral. This distinction can significantly impact the risk level for borrowers, as a recourse loan poses a greater personal financial risk.