Exit Strategy for Bridging Loans

Wednesday 4th January 2023 | 3 minute read

An exit strategy is how you intend to repay your bridging loan.

A robust and realistic method of repaying your bridging loan is a condition of being accepted for finance. This article explains what an exit strategy is and how it can be used to help you repay your bridging loan.

Woman holding key to home to signify house sale, which is an exit strategy of a bridging loan

What is an Exit Strategy for a Bridging Loan?

An exit strategy for a bridging loan is the borrower's plan for repaying the bridging loan in full prior to the loan term end. The high-value nature of bridging loans means that a typical exit will involve the sale of a high-value asset, such as a property, or through securing longer-term financing before the loan term end. 

Repaying a loan is important for any type of finance borrowing, however it's especially so with a bridging loan due to the short-term, high interest rate nature of the loan. If you fail to exit your bridging loan within the agreed loan term, the financial consequences are significant, ranging from incurring additional costs and/or the risk seizure of the asset that the loan is secured against. For example, this could mean losing your property if it has been used as collateral.

Why do Bridging Loan Lenders require an Exit Strategy?

Having an exit strategy in place helps the bridging loan lender determine a borrower’s creditworthiness and the risk associated with the loan. Lenders need to know how they'll get their money back. Lenders aim to avoid defaults as it ties their capital up for a longer term than they had planned, stopping them from lending the money out again to another customer and generating less profit.  

An exit strategy demonstrates to lenders that the borrower has thought ahead and has a realistic plan for how they will repay the loan. This demonstrates the borrower’s commitment to repaying a bridging loan, which may improve their chances of getting approved for the loan.

What are the options for Bridging Loan Exit Strategies?

Bridging loan lenders require that borrowers provide an exit strategy before approving any loan application.

The most common exit strategies include the following:

Sale of the Property

Borrowers can repay a bridging loan by selling the property they are financing. If the value of the property is sufficient to pay off the loan, then the sale is a viable exit strategy.

Refinancing the loan onto longer-term finance

When taking out a bridging loan, borrowers should consider refinancing the loan and converting it into a more permanent form of financing such as a mortgage. Refinancing a bridging loan enables borrowers to keep the property while taking advantage of more advantageous terms relative to the original loan.

Equity Investment

A third exit strategy involves raising capital through an equity investment. Borrowers can seek out an investor to provide the funds for repayment of the loan.

Money or Asset Repayment

Borrowers can also look to alternative sources of cash to repay a bridging loan, such as savings accounts, using anticipated inheritance, cashing out an annuity, or liquidating any assets that can be used to pay off the loan.

Will a lender accept an alternative repayment proposal?

Different lenders accept different repayment proposals. If you've an alternative or unusual repayment proposal, speak with one of our financial experts and we'll aim to match your specific requirements to right lender.

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What are the Benefits of an Exit Strategy for Bridging Loans?

Having an exit strategy for a bridging loan is essential in helping to prevent any unexpected financial difficulty. 

The benefits of having a viable exit strategy are:

  • You won't be able to get the loan without it.
  • You will be able to pay off the loan balance when it's due.
  • You can plan ahead and budget for repaying the loan.
  • Have peace of mind knowing you'll exit the loan.

Without an exit strategy, borrowers may be unable to repay a bridging loan and default on the debt.

An exit strategy helps borrowers plan ahead so that they can ensure a swift and successful repayment of the loan. 

Final thoughts

In conclusion, an exit strategy is a critical component of securing and successfully managing a bridging loan. It not only facilitates the loan approval process by demonstrating to lenders a clear and feasible plan for repayment but also safeguards borrowers from potential financial pitfalls associated with these high-interest, short-term loans.

Borrowers can tailor their exit strategies to their specific circumstances, however they need to be mindful that not all bridging loan lenders will accept every type of exit. Speaking with an expert bridging loan broker before application will ensure the exit strategy is suitable, and matches the lender's requirements.

This strategic planning is essential for maintaining their financial health and ensuring that the bridging loan serves as a beneficial tool rather than a financial burden. Ultimately, a well-conceived exit strategy is simply required to achieve a successful and problem-free end to a bridging loan agreement.

We're experienced financial experts who arrange short-term bridging loans for individuals and companies, securing you the best deal from over 200 UK bridging loan lenders, including private equity firms, investors and family offices.

Get expert assistance today. We're here to answer any questions about bridging loans.

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