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The importance of exit strategies
In short-term property finance, the urgency around bridging loans is often found in obtaining the loan in the first place. Time matters when a property purchase or a refurbishment project deadline is coming to an end, but what is often overlooked, however, is how the bridging loan is going to be repaid.
This is where a clear exit strategy becomes vital.
Even if you’re experienced in property and new to bridging loans, your exit strategy is one of the most important parts of the process. It provides confidence, protects your investments, and keeps your project moving in the right direction.
What is an exit strategy?
An exit strategy is the plan you put in place from the outset for how you intend to repay your bridging loan at the end of the term. At KSEYE, we review this as part of our decision-making process to ensure the loan fits your timeline and objectives. The strategy needs to make sense for your project and hold up within the timeframe of the loan. It should reflect your broader financial plans and be something you can genuinely follow through on.
Some common exit strategies include:
- Selling the property once the works are finished
- Refinancing onto a longer-term mortgage or buy-to-let
- Releasing funds by selling another asset
- Using company profits, savings, or other available funds
Why an exit strategy matters.
At KSEYE, we use an exit strategy to help us understand and have confidence in approving your bridging loan application. These strategies are a key indicator of whether your loan will likely be repaid on time and in full, and can help play a central role for you in keeping the rest of your project aligned and on schedule.
Equally, exit strategies help reduce any risk that may occur throughout your project. It also provides guidance on how you move forward once the loan ends, whether that’s through refinancing with a longer-term loan, such as a traditional or buy-to-let mortgage, releasing capital, or starting your next project.
What makes for a good exit strategy?
A good exit strategy is one built to be straightforward and attainable, while they aren’t based on perfect timing or ideal scenarios, it is designed to help you understand what’s likely to happen.
If you’re planning to sell, you should check whether there is confidence in the market and enough room in the timeline to complete. If you’re refinancing, it helps to know the criteria of the lender you’re likely moving to and whether you’re likely to meet their terms. You don’t need a complex plan. You just need one that holds up under scrutiny and shows you’ve thought it through.