The Core Difference
| Factor | Recourse | Non-Recourse |
|---|---|---|
| Personal liability | You’re liable for any shortfall if pledged shares are liquidated and don’t cover the balance | Liability is limited to the pledged shares — no exposure beyond the collateral |
| Typical LTV | Higher — up to 70% | Lower — typically 40–55% |
| Interest rate | Lower — lender has recourse to you personally | Higher — lender bears the downside risk |
| Margin calls | Yes — top up collateral if value drops | Varies — some non-recourse facilities have no margin calls at all |
| Best suited for | Borrowers confident in the stock’s stability who want maximum LTV | Borrowers wanting downside protection, especially on concentrated or volatile positions |
How Margin Calls Work in Practice
If pledged shares fall below the lender’s required coverage ratio (typically 120–130% of the loan balance), you’ll receive a margin call. You then have three options: pledge additional shares, deposit cash to restore the ratio, or repay part of the loan. Miss the window (usually 2–5 business days) and the lender may liquidate part or all of the pledged position.
Worked example: A £1,000,000 portfolio at 60% LTV gives a £600,000 loan. On a recourse basis, if the portfolio falls 40% to £600,000, you’re at 100% LTV and facing a margin call — and if liquidation doesn’t cover the full balance, you owe the difference personally. On a non-recourse basis structured at the same starting LTV, the same fall triggers the same margin call, but if the position is fully liquidated and still falls short, the lender absorbs that shortfall, not you.
Which Should You Choose?
- Choose recourse if: you want the highest possible LTV, you’re confident in the position’s stability, and you’re comfortable with margin call obligations.
- Choose non-recourse if: you’re holding a concentrated single-stock position, you want to cap downside risk regardless of market moves, or you’re using the loan for a purpose where an unexpected personal liability would be unacceptable.
Frequently Asked Questions
What happens if a non-recourse stock loan is called and the shares are worth less than the loan?
The lender’s only recourse is the pledged shares. Any shortfall between the liquidation proceeds and the outstanding balance is absorbed by the lender, not the borrower.
Are non-recourse stock loans available on all stock types?
Availability depends on liquidity and volatility. Blue-chip, large-cap listed equities on major exchanges are most readily financed non-recourse; concentrated or thinly traded positions may only be available on a recourse basis, or at a lower LTV.
Why would anyone choose recourse if non-recourse removes personal liability?
Recourse loans typically offer meaningfully higher LTV and lower rates, since the lender has a personal claim beyond the collateral. For borrowers confident in the position, this can be the more capital-efficient choice.
Do margin call terms differ between recourse and non-recourse structures?
Yes — some non-recourse facilities are structured with no margin call provisions at all, in exchange for a lower LTV and higher rate. This trade-off should be discussed explicitly with your broker before signing.
Get in touch to discuss which structure fits your shareholding and objectives — contact our team.