For borrowers Exit Strategies Explained

Why the exit comes first

A bank writing a long-term loan leans on serviceability: can the borrower meet the repayments from income, month after month, for years. The loan repays itself gradually, and the question is whether the income holds up.

A short-term private loan works the other way. The term is measured in months, interest is often prepaid or capitalised, and the whole balance falls due at once. Monthly repayments barely feature. What matters is whether the money will be there on the day the loan ends.

That's why lenders ask about the exit before almost anything else. The security protects the lender if things go wrong. The exit is how things go right.

The main exits

Sale. Selling the security property or another asset. It's the most common exit for bridging finance and for completed developments. Lenders look at whether the expected price is realistic, how deep the market is for that kind of property, and how long a sale usually takes. A sale exit is only as good as the valuation behind it, not the price the owner is hoping for.

Refinance. Moving to a bank or a longer-term lender. This usually depends on something changing first: a building completed or leased, tax returns lodged, a credit issue that has aged. A refinance exit is really a promise that something will change. Lenders want to know what, and when, and why the borrower will qualify then when they don't now.

Business cash flow. Repaying from trading income, such as a seasonal peak or a large contract paying out. It's harder to evidence than a sale or a refinance, so lenders tend to want a trading track record and often property security alongside it.

Settlement of another transaction. Funds arriving from somewhere else: another property that has exchanged, the sale of a business, an estate distribution or a legal settlement. The closer the transaction is to certain, the stronger the exit. An exchanged contract says far more than a listing.

The exit that wasn't there

Exit risk isn't a new idea. Before the 1930s, many American home loans were short-term and interest-only, with the whole balance due after a few years. Borrowers expected to refinance at maturity, and in normal times they could.

When the Depression hit, lenders stopped rolling loans over. Borrowers who had never missed a payment lost their homes, not because they couldn't pay the interest, but because the refinance they had counted on no longer existed. The long-term amortising mortgage that became standard afterwards was, in part, a response to that failure.

The lesson has held for nearly a century. An exit that depends on a market staying open isn't the same as an exit already in hand.

What makes an exit credible

Every borrower has an exit in mind. What separates a credible one from a hopeful one is usually some combination of the following:

• Evidence. An exchanged contract, a valuation, recent comparable sales, a signed lease, indicative terms from a refinance lender, or accountant-prepared figures. The more the exit rests on documents rather than expectations, the more weight it carries.
• A timing buffer. A loan term that runs comfortably past the expected exit date. Sales take longer than hoped, and refinances get held up by valuations and paperwork. A term that ends the week the exit is due leaves no margin at all.
• A plan B. What happens if the first exit falls through: a sale if the refinance doesn't come together, or another asset that could be sold. Lenders weigh the fallback heavily, because it's what protects everyone when the main plan slips.
• Consistency. The exit has to match the rest of the file. A refinance exit for a business whose financials won't support bank lending for some time raises questions rather than answering them.

Plans don't fail on the day the loan falls due. They fail months earlier, when the buffer was left out.

What happens if the exit runs late

Exits slip. Lenders know it, and most loan agreements anticipate it. The exact terms are set by each agreement, and a lawyer is the right person to explain them, but the general pattern is similar.

Extensions. Many private lenders will consider extending the term when the exit is delayed but still credible. An extension is at the lender's discretion, not automatic, and usually comes with a fee and updated conditions such as a new valuation.

Default interest. Most agreements allow for a higher rate once a loan passes its maturity date unpaid, along with costs. The total owed can grow quickly, which eats into the equity that the exit depends on.

Enforcement. Where there's no credible path to repayment, a lender can ultimately enforce its security, which can mean taking possession and selling the property. It's the outcome both sides work hardest to avoid.

Lenders generally respond far better to a delay raised when it first becomes visible than to one raised the week the loan falls due. A lender told early has options. A lender told late has fewer. It's the same reason timing matters so much when a settlement is at risk.

Where Private Lending Group fits

We work with more than 70 private and non-bank lenders and stay across what they're funding right now, including how each of them looks at different exits. If your scenario fits, we can connect you with the lenders it suits, in the right order. The lender assesses the exit and makes the credit decision.

We aim to be in touch within the hour. Once we have what we need, you'll usually know within 24 hours whether there's a credible funding pathway, and if there isn't, why. You can also see what our lenders are funding right now.

We work on commercial and business-purpose loans only. Where a bank is the better fit, or if you need a home loan, personal loan or any other consumer loan, we'll put you in touch with one of our trusted brokers.