What is an Exit Plan for Commercial Bridging Finance?

Here’s a simple guide to understanding commercial bridging exit plans and why they are important:

What Is an Exit Plan?

An exit plan for commercial bridging loans is a way to repay a short-term loan, usually used for buying, renovating, or developing property.

At the time of application, a lender will focus their attention on how and when they are going to get their money, plus interest, back and want a realistic exit plan in place.

Key Parts of an Exit Plan

1. Refinancing – This means getting a new, long-term loan to pay off the short-term bridging loan via a remortgage. It may be possible to re-bridge, i.e. get a new bridge to pay off your existing one in some cases also.
2. Property Sale – Popular with investors, this is where you sell the property you bought with the bridging loan to repay the debt. This works well if you’ve improved the property and can sell it for a higher price and make a profit.
3. Business Cash Flow – Use the money your business makes to pay off the loan. This works if you expect your business to earn enough money soon via a banked pipeline.
4. Asset Disposal – You can sell other things you own, like other properties or investments, to get the money needed to repay the loan.
5. Investments – If you have investments that will pay out soon, you can use that money to repay the loan. Often, money may be tied up in bonds with maturity dates and the penalties can be high to access this money sooner.

Why Do You Need an Exit Plan?

The lender will need to know that you are organised and capable of repaying your loan within the agreed timescales.

The clearer and more solid your exit plan is, the more likely you are to be accepted for the loan and get good interest rate terms.

Not repaying your loan on time may result in wasting a lot of money on fees and could lead to repossession.

The lender would do a quick sale meaning that you will not achieve a market price for your property. A clear repayment plan is required from the outset so both parties know where they stand.

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How to Make a Good Exit Plan

1. Know your Cash Flow – Look at your current money situation and future income. Know your best and worst periods, assets, and debts.
2. Seek Advice – Getting advice from your accountant can help you understand your repayment plans, a good mortgage broker will work alongside these conversations.
3. Have a Good ‘Plan B’ – it is always best to be ready with a second option in case the first plan doesn’t work out. For example, if you plan to sell a property but can’t, have another way to get the money.
4. Review Regularly – Keep checking your plan and seek advice from your accountant, it will need updating if your situation changes.

Example of an Exit Plan

1. Scenario – You need to take a commercial bridging loan to buy and fix up a property.
2. ‘Plan A’ – After fixing up the property, get a long-term loan in the form of a commercial mortgage based on its new value.
3. ‘Plan B’ – If getting the new mortgage takes longer, plan to sell another property you own to repay the bridging loan.
4. Contingency – If neither works, have a line of credit secured against other assets.

The Importance of Bridging Loan Advice

A clear exit plan is crucial when taking a commercial bridging finance. It helps you get the loan and ensures you can repay it without stress.

By understanding your finances, seeking expert mortgage advice, and planning for different outcomes, you can create a strong exit strategy that works for you.