Quick answer
An exit strategy is the specific plan for repaying a short-term loan at the end of its term, such as a property sale, a refinance to longer-term finance, or a confirmed business payment. Lenders assess how certain and how timely the exit is. Credible exits are documented, realistic and leave a time buffer. Plan a fallback in case the exit is delayed, because extensions usually cost more.
Key points
- Short-term secured loans are repaid from an event, not just cash flow.
- Lenders judge exits on certainty, timing and documentation.
- Build in a time buffer beyond the expected exit date.
- Have a fallback plan before you need it.
Checklist
- Exit event identified
- Supporting documents gathered
- Realistic timeline with buffer
- Fallback plan agreed
- Extension terms checked
Short-term secured business loans, such as caveat loans, bridging loans and short second mortgages, are designed to be repaid by an event rather than by years of instalments. That event is the exit. Lenders spend as much time on the exit as on the property, and borrowers should too. A loan with a weak exit is a loan that can turn expensive very quickly.
What an exit strategy is
An exit strategy is a clear answer to the question: how, and when, will this loan be repaid in full? It should name the source of funds, the expected date and the evidence that it will happen.
Common exits
| Exit | Strength | What makes it stronger |
|---|---|---|
| Unconditional property sale | Strong | Exchanged contract, settlement date |
| Property listed for sale | Moderate | Realistic price, strong market, conservative timeline |
| Refinance to a bank | Moderate to strong | Pre-approval, complete documents |
| Confirmed contract payment | Moderate to strong | Signed contract, creditworthy payer, milestone evidence |
| Business cash flow | Variable | Steady surplus that can clear the loan within the term |
| Asset sale | Moderate | Buyer identified, valuation |
How lenders judge an exit
Lenders ask three questions: how certain is the exit, how soon will it occur, and what evidence supports it? An exchanged sale contract scores well on all three. A plan to “refinance once the books are done” scores poorly unless accompanied by evidence that the books will support a refinance. The weaker the exit, the more conservative the lender will be on LVR, term and price.
Build a buffer
Most exits arrive later than planned. Property settlements are delayed, refinances wait on valuations, customers pay late. Choose a loan term that extends comfortably beyond the expected exit date. A slightly longer term costs little if you repay early (check payout terms), while an extension under pressure can cost a lot.
Plan a fallback
Before signing, decide what you will do if the primary exit fails or is delayed. Could you sell a different asset? Refinance with another lender? Use business cash flow to reduce the balance? Having a fallback, and telling the lender about it, strengthens your application and protects you.
When the exit slips
- Contact the lender as soon as you know, not on the expiry date.
- Explain what has happened and provide updated evidence.
- Ask about extension terms, partial repayment or other options.
- Compare the cost of an extension with refinancing elsewhere.
Our guide to early repayment and payout figures helps if you are refinancing out.
Capitalised interest and the exit
If interest is added to the loan, the amount to repay at exit will be higher than the amount borrowed. Make sure the exit covers the full balance, including capitalised interest and fees. Our bridging loans review explains the interest options.
Common mistakes
- Relying on a best-case sale price or timeline.
- Assuming a bank refinance without checking eligibility.
- Choosing a term that ends the week the exit is expected.
- Forgetting fees and capitalised interest in the exit amount.
- Waiting until the last day to raise a delay.
An illustrative example
A made-up builder takes a caveat loan to clear an ATO debt, with the exit being the sale of a townhouse from a completed project. The contract has exchanged with settlement in eight weeks. He chooses a five-month term to allow for delays. Settlement is pushed back three weeks, but the buffer absorbs it, and the loan is repaid with no extension needed.
Writing the exit down
A one-page exit summary helps both you and the lender: the exit event, its expected date, the evidence attached, the amount it will produce, the full amount needed to repay the loan including capitalised interest and fees, the buffer between the two and your fallback. Writing it down often reveals gaps, such as sale costs that reduce net proceeds or a refinance that needs documents you have not yet gathered.
Net proceeds, not headline figures
If your exit is a property sale, remember that agent commission, legal costs, the first mortgage payout and any other debts come out before the short-term loan is repaid. Lenders calculate net proceeds conservatively, and so should you. A sale that looks ample at the headline price can be tight once everything else is paid.
Exits and multiple lenders
When more than one lender is involved, the order of repayment at settlement matters. Make sure each lender knows the plan, and that your solicitor or conveyancer has payout figures from all of them before settlement day.
Need short-term finance with a clear exit?
If you need funds now and can point to how they will be repaid, a short-term secured loan may help. Make one enquiry to explore it. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than many. Describe the exit and its expected date as precisely as you can in your enquiry.
Frequently asked questions
What is a good exit strategy?
One that is specific, documented and likely to happen on time, such as an unconditional sale contract, a refinance approval or a signed contract with a confirmed payment date.
What if my exit is delayed?
Contact the lender early. Options may include an extension, a refinance or a partial repayment. Extensions usually involve extra fees and interest.
Do lenders accept a property listing as an exit?
A listing alone is a weaker exit than an exchanged contract. Lenders may accept it with a conservative timeline, a lower LVR and a fallback plan.
Can business cash flow be an exit?
For some short-term loans, yes, if cash flow can clearly repay the loan within the term. For larger loans, lenders usually prefer an event-based exit.
How long a buffer should I build in?
Enough to absorb realistic delays, which depends on the exit. Property sales and refinances often take longer than expected, so err on the side of more time.
What is a refinance exit?
It means repaying the short-term loan with a longer-term loan, often from a bank. Lenders like to see evidence that the refinance is achievable.
Can I repay early if the exit comes sooner?
Usually, but check the payout terms. Some short-term loans have minimum interest periods.
What if my exit produces less than expected?
You would need to cover the shortfall from other funds or arrange a refinance for the balance. Building a margin between expected proceeds and the payout amount reduces this risk.
Should my accountant review my exit plan?
For larger loans, yes. An accountant can check the numbers, the tax implications of a sale and whether a refinance is realistic on your financials.
Sources and further reading
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