Underwriting concepts
Full recourse
Loan structure where the lender, on default, can pursue any of the borrower's assets and (where given) any guarantor's personal assets, not just the property securing the loan.
Full recourse describes a loan where, on default, the lender can pursue any asset of the borrower (corporate or personal) to recover any shortfall after the property security has been realised. Most UK commercial mortgages to small and mid-sized borrowers sit somewhere on the recourse spectrum, with full recourse at one end and true non-recourse at the other.
What full recourse looks like in practice
A typical UK commercial mortgage to a limited-company borrower with a director PG is functionally full recourse:
- First charge over the financed property.
- Debenture over all corporate assets (fixed and floating).
- Personal guarantee from the directors, often uncapped or capped at 100% of the loan plus interest and costs.
If the property sale leaves a shortfall, the lender pursues:
- Corporate assets under the debenture (cash, book debts, plant, other property).
- The directors personally under the PG, up to the cap or to the full extent of personal assets if uncapped.
Why borrowers accept full recourse
Two reasons. First, it is the only structure available at the LTV and pricing the borrower wants. Specialist commercial mortgage lenders offer competitive rates partly because of the recourse package. Second, the cover ratios make a default scenario unlikely on the underwriting numbers, so the borrower treats the recourse as theoretical rather than practical.
How full recourse interacts with the bankruptcy regime
A director who has given a personal guarantee on a full-recourse commercial mortgage and is then unable to meet the call may face individual bankruptcy proceedings. Once a guarantee is called, the principal sum, accrued interest, default interest and recovery costs all rank as a personal debt. UK personal bankruptcy procedure (IVA, bankruptcy order) then applies. The PG does not disappear in a company insolvency.
Limited-recourse as a middle path
Most negotiations land at limited-recourse. The PG is capped (typically 20 to 30% of loan). The debenture is specific rather than all-monies. The lender retains contractual recourse but the borrower’s downside is bounded.