Recourse in Australian Finance: 2025 Guide for Borrowers & Lenders

Recourse is a critical term in Australian finance, shaping how risks and responsibilities are allocated between borrowers and lenders. As regulations evolve in 2025, understanding recourse has never been more important for individuals and businesses navigating loans, asset finance, and even insolvency scenarios.

What is Recourse? The Backbone of Loan Security

At its core, recourse refers to a lender’s legal right to claim a borrower’s other assets if the collateral securing a loan isn’t enough to cover what’s owed. In a recourse loan, the lender can pursue the borrower’s personal or business assets beyond the financed property itself. In contrast, a non-recourse loan limits the lender’s claim strictly to the collateral.

• Recourse loans: Common in Australian mortgages (outside certain SMSF structures) and most business finance products.

• Non-recourse loans: Rare in Australia; more common in specific project finance or SMSF lending for property.

Example: If you default on a recourse car loan, the lender can repossess the vehicle and chase your other assets or income for any remaining debt. With non-recourse, their claim ends with the car.

2025 Regulatory Changes: Recourse Under the Spotlight

Several key changes in 2025 are reshaping how recourse is applied and understood in Australian lending:

• Consumer Credit Protection: The Australian government’s 2025 reforms to the National Consumer Credit Protection Act have tightened disclosure requirements. Lenders must now make recourse terms more explicit in loan agreements, aiming to reduce borrower confusion and improve transparency.

• SME Lending Guidelines: Updates from the Australian Prudential Regulation Authority (APRA) have clarified when business loans must be full-recourse. This is a response to rising insolvencies and small business defaults in late 2024, ensuring lenders maintain responsible lending standards.

• Personal Insolvency Laws: As of January 2025, new bankruptcy rules mean recourse lenders may have a streamlined process for registering claims against bankrupt individuals, making it crucial for borrowers to understand the full extent of their liabilities.

These changes are designed to balance the rights of lenders to recover debts with protections for borrowers, especially in a period of higher interest rates and economic uncertainty.

Recourse in Action: Real-World Scenarios

Understanding recourse isn’t just for legal experts — it has practical consequences for everyday Australians:

• Home Loans: Most Australian mortgages remain full-recourse in 2025. If a homeowner sells their property for less than the outstanding loan, the bank can pursue other assets or income to recover the shortfall. This contrasts with some US states, where non-recourse mortgages are common.

• Business Asset Finance: When a small business takes out an equipment loan, the lender may require directors to provide a personal guarantee — effectively making it a recourse loan. If the business defaults, directors’ personal assets could be at risk.

• Investment Property via SMSF: Certain SMSF property loans must be non-recourse by law, protecting other fund assets if the investment fails. This exception highlights how recourse can be tailored to specific regulatory objectives.

Borrowers should always scrutinise their loan documents for recourse clauses, especially in complex products or when personal guarantees are involved. Lenders, meanwhile, need to assess the risks and administrative burden of enforcing recourse rights, particularly under the new 2025 disclosure rules.

How to Navigate Recourse Risks in 2025

Whether you’re a borrower or a lender, understanding and managing recourse exposure is more important than ever:

• For Borrowers: Ask direct questions about recourse before signing any loan. Consider the worst-case scenario: could your home, savings, or business assets be at risk?

• For Lenders: Ensure all recourse terms are clearly disclosed and comply with 2025 regulatory standards. Weigh the benefits of recourse against the potential reputational risk in pursuing aggressive recovery actions.

• For Investors: When investing through SMSFs or managed funds, check whether underlying loans are recourse or non-recourse, as this impacts both risk and return.

Recourse isn’t just legal fine print — it’s a key factor in how risk is shared in Australia’s financial system. With the current focus on transparency and fairness, understanding your recourse exposure is essential for smart financial decision-making in 2025.