Exit Strategies: How Short-Term Loans Get Repaid

Key takeaways

• The three real exits are sale, refinance and project completion.
• A credible exit is evidenced, not asserted.
• Build a buffer: exits routinely take longer than planned.
• If the exit slips, talk to the lender before the term expires, not after.

Why lenders insist on an exit

A short-term loan is priced and structured to be repaid in a lump, from an event, within months. It is not underwritten on your ability to service it from income for years, because at private lending rates almost nobody can. The exit is therefore the primary repayment source, which makes it the primary thing the lender assesses.

That is the reverse of a bank home loan, where serviceability from income is the main test and the security is the fallback. In private lending the security and the exit are the test, and income is secondary.

So an application that is vague about repayment is not merely incomplete - it is missing the main thing. "We will refinance at some point" is not an exit; "we have conditional approval from X subject to the certificate of occupancy, expected in March" is.

What counts as a credible exit

Three exits carry a private loan, and each is credible in proportion to the evidence behind it.

Time the exit against the term with room to spare. If a sale realistically takes five months and your facility runs six, you have one month of tolerance for a market that does not cooperate - which is not much. Lenders and borrowers both routinely underestimate how long an exit takes.

What if you cannot exit in time?

This is the real risk in short-term lending, and it is manageable if addressed early. Act six weeks before expiry rather than six days after.

1. Tell the lender as soon as the slip is visible, with evidence of the new timeline.
2. Ask for an extension and get its cost in writing. Many lenders will extend where the exit is simply delayed rather than gone.
3. Look for a refinance to take the facility out - easier before any default is recorded.
4. Reprice the sale if the exit was a sale. An honest reduction usually beats holding out while default interest accrues.
5. Get your own legal advice, especially where a guarantee or your home is involved.

The most expensive choice is silence. Default interest compounds, enforcement costs are added, and options that existed at week six have closed by week twelve.

The best protection is arranged at the start: negotiate the extension terms before you sign, when you have leverage and the lender wants your business.

Frequently asked questions

What is an exit strategy on a loan?

The specific, evidenced event that repays the loan in full - usually a property sale, a refinance to cheaper funding, or a project completing. It is the primary repayment source for short-term lending, which is why lenders assess it before anything else.

What if I cannot sell before my bridging loan expires?

Contact the lender before the term ends and request an extension in writing, while also pursuing a refinance and reconsidering your sale price. Options narrow sharply once the loan is in default and default interest is running.

What happens at the end of a private loan term?

The balance including capitalised interest and fees falls due in full. If it is not repaid, the loan is in default: default interest applies, costs are added, and the lender can act on its security.

Related reading

• What Happens If You Default on a Private Loan?
• What Is a Caveat Loan and How Fast Can You Get One?
• What Private Lending Actually Costs in Australia

Sources

• Moneysmart - borrowing basics — ASIC
• Problems with debt — Moneysmart, ASIC