Two stock loans can carry the same loan-to-value and the same headline rate and still be entirely different instruments. The difference is recourse — what the lender can reach if the charged shares are not enough to repay the loan. It is the least-discussed term in a term sheet and, in our view, the most consequential. This note sets out the three profiles, plainly, and why the choice deserves more attention than the number everyone fixes on first.
Recourse, defined
When a stock loan is enforced — because a margin call went unmet, say, and the position was realised — there may be a shortfall between what the charged shares fetch and what is owed. Recourse answers a single question: can the lender pursue the borrower personally, and the borrower's other assets, for that shortfall? The answer defines where the risk of a bad outcome ultimately sits.
The three profiles
- Non-recourse — the lender's remedy is limited to the charged shares. No shortfall claim against the borrower personally.
- Full-recourse — the borrower remains personally liable for any shortfall after the shares are realised.
- Limited-recourse — a negotiated middle ground; recourse beyond the shares is capped, conditional, or partial.
Non-recourse
In a non-recourse facility the charged shares are the lender's only remedy. If they fall short, that is the lender's loss, not a claim that follows the borrower home. For the shareholder this is the most protective profile: the downside is ring-fenced to the position itself, and the rest of the balance sheet is untouched. That protection is not free — a lender pricing only the shares will be more conservative on LTV, more attentive to liquidity and volatility, and will charge for the risk it is absorbing. Non-recourse suits a holder who wants a clean line drawn around the transaction and is willing to accept a lower advance for it.
Full-recourse
At the other end, a full-recourse facility leaves the borrower personally liable for any shortfall. The shares are the first port of call, but not the last. For the lender this is the most secure profile, and it tends to translate into the most favourable headline terms — a higher LTV, finer pricing — because the lender is not relying on the collateral alone. The trade-off for the borrower is real: a severe, adverse move in the share could produce a personal claim that reaches well beyond the position that was financed. Full-recourse can be entirely sensible for a holder with the balance-sheet strength and the conviction in the counter to stand behind it — but it should be chosen with eyes open, not accepted by default because the rate looked attractive.
Limited-recourse
Most real transactions live in between. Limited-recourse is the negotiated space where the parties agree that recourse beyond the shares exists but is bounded — capped at an amount, triggered only in defined circumstances, or shared in a defined proportion. This is where structuring earns its keep, because the dial can be set to match the holder's risk appetite and the lender's comfort with the specific collateral. A conservatively-sized advance against a liquid counter might carry only a thin sliver of recourse; a larger advance against a more concentrated position might carry more. The point is that it is a deliberate choice, calibrated, not a binary imposed by a rate card.
Why the choice outranks the rate
Borrowers instinctively compare stock loans on LTV and price, because those are the numbers that fit on a single line. But two facilities with identical LTV and rate can distribute risk in opposite directions depending on recourse. A higher advance at a finer rate on full-recourse terms may be a worse deal for the holder than a lower advance at a higher rate that is non-recourse — because the first quietly puts the rest of the holder's wealth on the line and the second does not. Reading a term sheet without reading its recourse is reading half of it.
This is also why recourse connects directly to the discipline discussed elsewhere on this site. Conservative LTV and realistic volatility modelling reduce the chance that recourse is ever tested, because they keep the facility away from the enforcement scenario in the first place. The best recourse outcome, on any profile, is the one that never arrives.
How we approach it
We treat recourse as a first-order term, set deliberately as part of the indicative structure rather than buried in the documentation. We will say plainly which profile a given position can support, what each one does to the LTV and pricing, and what the holder is actually accepting in each case. Whether the facility is conventional or Shariah-compliant, the recourse question is settled up front and reviewed by the borrower's own Malaysian counsel before anything is signed. Decide recourse consciously, and the rest of the term sheet reads true.