Recourse

Recourse is the legal right of a lender to take over pledged collateral when a borrower is unable to pay back a loan. Recourse lending greatly reduces the risk for lenders, since it gives them a second source from which repayment can be made (besides the cash flows of the borrower). A full recourse lending arrangement leaves the borrower liable for the full amount of the underlying debt, which may be more than the amount that the lender obtains from sale of the associated collateral. In a non-recourse arrangement, the lender can only obtain satisfaction from the sale of the collateralized asset - the borrower is not liable for any additional amount.

Larger borrowers are more likely to be able to force lenders to accept non-recourse lending arrangements.