Non-Recourse Commercial Loans: Who Pays If the Sale Falls Short?
Most Australian commercial property loans are full recourse: who pays if the sale falls short, where limited recourse exists and how to cap liability.
Property Lending Hub
Non-Recourse Commercial Loan · Shortfall · Personal Liability
A non-recourse commercial loan is the exception in Australia, not a product you can shop for. Here is who pays when a commercial property sells for less than the loan, where limited recourse is actually used, and how self-employed owners can cap their personal exposure.
Quick Answer
A non-recourse commercial loan lets the lender look only to the property if you default, but for self-employed borrowers in Australia it is rare rather than something you can choose off a menu. Most commercial property loans are full recourse and backed by a director's guarantee, so a shortfall after a sale stays owing. The practical goal is a recourse loan with your exposure sized and capped.
Also called: limited recourse loan, asset-only lending, non-recourse finance. They are not quite the same thing: a limited recourse loan caps recovery to named assets, while a true non-recourse loan lets the lender look only to the security.
What is a non-recourse commercial loan?
A non-recourse commercial loan is a loan where, if the borrower defaults, the lender looks only to the security and cannot chase anyone for the part of the debt the sale fails to cover. Moneysmart's definition of a non-recourse loan puts it plainly: the lender can seize only the assets put up as collateral, and cannot seek further compensation even if those assets do not cover the loan.
A recourse loan works the other way. The property is the first source of repayment, not the only one. If the sale comes up short, the lender can pursue the borrower's other assets and, where someone has signed a guarantee, that person as well. The security is the same in both cases. What changes is how far the lender can reach once the security is gone.
Many owners assume a commercial loan is "secured on the building" and stops there. That belief is the most common misreading we see. A loan can be fully secured and still be full recourse, and on most small and mid-sized commercial deals in Australia, it is.
Are non-recourse commercial loans available in Australia?
Non-recourse commercial loans are available in Australia, but rarely to self-employed borrowers and small business owners, because most Australian commercial lending is full recourse. Major banks, non-bank lenders and private lenders typically take a first mortgage over the property and a guarantee from each director of the borrowing company or trustee.
In deals I've seen, the guarantee requirement is close to standard for a company or trust buying or refinancing its own premises or a small investment property. Where a lender genuinely drops personal recourse, it is usually on a large, institutional-grade asset with long leases, low gearing and a borrower whose balance sheet sits entirely inside the deal.
Why do lenders insist on recourse for a small commercial loan?
Lenders insist on recourse because commercial property values move with rents, vacancy and interest rates, and a forced sale often achieves less than an orderly one. The gap between market value and forced sale value is exactly the risk recourse covers. For the credit team, a guarantee also answers a softer question: are the people running the business committed enough to keep paying when trading gets hard?
For most owners, a guarantee is where recourse reaches you. The company or trust is the borrower, but the director signs personally, which turns a company debt into a personal exposure if the property and the business cannot clear it. How a director's guarantee works, and the difference between limited and unlimited versions, is covered in our director's guarantee guide, so we will not repeat it here.
What happens if the property sells for less than the loan?
If a commercial property sells for less than the loan, the shortfall after a mortgagee sale stays owing, and the lender can pursue the borrower and any guarantors for it. On a full recourse loan the sale reduces the debt. It does not end it. The usual order runs like this:
- Default. A missed repayment, a breached covenant or an expired term that is not refinanced can each put the loan into default.
- Notices and demand. The lender issues the notices its loan documents and the law require, then demands repayment from the borrower and any guarantor.
- Possession and sale. If the debt is not cleared, the lender can take possession and sell the property as mortgagee.
- Proceeds applied. Sale proceeds typically go first to selling costs, then to enforcement costs, default interest and fees, and only then to the loan balance.
- The shortfall. Whatever remains unpaid is still a debt. The lender looks to the borrower's other assets and then to each guarantor, including any other property a guarantor has offered as security, sometimes by way of a second mortgage.
Two clauses widen the reach. An all monies clause can make a property secure every debt you owe that lender, not just the loan it was taken for, and cross-collateralisation can tie several properties to one facility. If a guarantee has already been called, our guide on what happens when a personal guarantee is called covers the next steps.
| Type of recourse | What the lender can pursue | Where you see it in Australia |
|---|---|---|
| Full recourse with guarantees | The property first, then the borrower's other assets, then each guarantor personally and any security a guarantor has given. | Typically the standard for self-employed and small business commercial property loans from banks, non-bank lenders and private lenders. |
| Limited recourse | Named assets only, such as one property held in a holding trust. Recovery is capped at those assets unless a separate guarantee has been signed. | SMSF limited recourse borrowing arrangements and some project or structured finance. Guarantees are commonly requested alongside. |
| Non-recourse | The security only. No claim against the borrower or anyone else for a shortfall. | Uncommon. Mostly large institutional or project lending, with gearing and pricing set to suit the extra risk the lender carries. |
Sources: Moneysmart (ASIC), Non-recourse loan, last updated 23 August 2019. Read 12 October 2026. Market practice columns reflect broker experience, indicative and varies by lender.
A lender selling as mortgagee generally has to take reasonable care over the price it accepts. Whether that happened on a particular sale, and whether a shortfall claim can be challenged, is a question for your solicitor rather than your broker.
Where is limited recourse lending used in Australia?
Limited recourse lending in Australia is used mainly in self-managed super fund property borrowing and in large project or structured deals, and in each case limited recourse caps what the lender can pursue to named assets.
How does limited recourse work inside an SMSF?
Limited recourse inside an SMSF works through a limited recourse borrowing arrangement: the fund borrows to buy a single asset, the asset is held in a separate holding trust, and if the loan defaults the lender's claim is limited to that asset, so the fund's other assets are protected. Lenders commonly ask the members or trustee directors for personal guarantees, which puts recourse back on the people behind the fund. The rules, and how they apply to business real property, sit in our SMSF property loans guide and our insight on SMSF commercial property loans.
What about project and structured finance?
Project and structured finance uses limited recourse when a special purpose entity holds one asset and the lender relies on that asset and its income rather than the owners. In return, the lender typically wants lower gearing, long leases to strong tenants and tighter covenants, and breaching those covenants can bring the problems covered in our guide to covenant breaches and interest-only expiry. That combination is rare in a self-employed owner's file.
Where limited recourse works
- An SMSF buying business real property through a single holding trust
- A large asset with long leases to strong tenants and low gearing
- A special purpose entity that owns the property and nothing else
- A borrower prepared to accept tighter covenants and pricing
Where it stalls
- A family company or trust buying its own premises
- Higher gearing with little room for a fall in value
- A short lease left to run, or a vacant or partly vacant building
- Specialised property with a narrow pool of buyers
How can you limit personal liability on a commercial property loan?
You can limit personal liability on a commercial property loan by borrowing less against the property, negotiating the guarantee, keeping other security out of the deal and planning the exit early. None of these turns a recourse loan into a non-recourse one, but together they shrink the amount that could ever land on you.
- Borrow less against the property. Lower gearing is the simplest cap on risk: a lower loan-to-value ratio leaves more room for values to fall before a sale stops covering the debt. Where gearing tops out varies by lender, and our insight on higher LVR commercial loans shows where it typically sits.
- Ask whether the guarantee can be limited. Some lenders will accept a guarantee capped at an amount, or limited to certain guarantors, typically on stronger files. The director's guarantee guide linked above covers how that works.
- Keep your other properties out of it. Offering your home or another property as extra security, asking a family member to act as a guarantor, or signing an all monies facility each widens what a shortfall can reach. Ask what is genuinely needed before you offer more.
- Choose the borrowing entity with your advisers. Holding the property in a separate company or trust can ring-fence the trading business, though a director's guarantee still reaches you personally.
- Plan the exit before you need it. Refinancing ahead of an interest-only expiry or a lease ending avoids a forced sale. Where a bank will not move in time, private lending can cover the gap, as our insight on private lending after a bank declines a commercial deal explains.
For most self-employed owners, the realistic goal is not a non-recourse loan. It is a recourse loan with the exposure sized, capped and understood before signing. Our guide to how commercial property loans work covers what lenders assess, and the Property Lending Hub and Business Owners Hub collect the rest.
What does recourse mean for your structure and tax?
Recourse changes your structure decisions because it decides whose balance sheet a shortfall lands on. If a company borrows and you guarantee, a shortfall the company cannot pay becomes a claim against you personally. If a lender later agrees to accept less than the full debt, the forgiven part can have tax consequences for the borrower, and how that works depends on the entity and the circumstances.
In an SMSF, the limited recourse rules shape the whole arrangement, including what the fund can do with the asset while the loan is in place. That is why the borrowing entity is worth settling early: bring in your accountant on the tax side and your solicitor on guarantee and loan terms before you choose it, not after a lender has issued a term sheet.
Non-recourse commercial loans exist, but not for most self-employed borrowers. Australian commercial property lending is overwhelmingly full recourse, backed by director's guarantees, so if a property sells for less than the loan the borrower and guarantors carry the gap. Limited recourse shows up mainly in SMSF borrowing and large structured deals, and even there guarantees are common. The levers you control are gearing, the scope of any guarantee, the security you offer and how early you plan the exit.
Key takeaway: assume your commercial loan is full recourse, then size the loan and the guarantee so a shortfall could never outrun what you can carry.Frequently Asked Questions
A non-recourse loan is a loan where, if the borrower defaults, the lender can recover only from the assets pledged as security and cannot pursue the borrower or anyone else for a shortfall. If the sale of the security does not cover the debt, the lender wears the loss. That extra risk is why non-recourse lending is uncommon for small business borrowers in Australia.
The lenders that offer non-recourse commercial loans in Australia are mostly institutional and project financiers working on large assets, plus SMSF lenders on a limited recourse basis. Major banks, non-bank lenders and private lenders typically require director's guarantees on small and mid-sized commercial property loans. Fit depends on the asset, the gearing and the borrower, so it varies by lender.
Getting a non-recourse commercial loan is hard for most self-employed borrowers, because lenders on small and mid-sized deals expect a director's guarantee. The deals that come close typically involve low gearing, long leases to strong tenants and a single-purpose borrowing entity. For most owners, negotiating the scope of the guarantee is a more realistic goal.
The difference between a recourse and a non-recourse commercial loan is what the lender can pursue after the property is sold. On a recourse loan any shortfall stays owing by the borrower and guarantors, and clauses such as an all monies clause can widen the security. On a non-recourse loan the lender looks only to the property.
A commercial property loan secured by the property only is uncommon in Australia, because most lenders also want a guarantee from the directors or trustees. The closest everyday example is an SMSF limited recourse borrowing arrangement, covered in our SMSF property loans guide, and even there lenders commonly ask for personal guarantees.
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