Everything You Need to Know About Exit Strategy for Bridging Loans

Bridging loans can be a lifesaver when you need quick cash, but they come with a catch, you must have a solid plan to pay them back. This is where exit strategies come into play.

In this post, we’ll discuss bridging loan exit strategies, exploring the ins and outs of repayment plans that’ll keep you on track and out of hot water.

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What is an Exit Strategy for Bridging Loans?

A bridging loan exit strategy is a plan that outlines how a borrower will repay the loan before its term ends. Bridging loans are short-term financing options often used to secure property quickly, whether for buying, renovating, or developing real estate. Common exit strategies include:

  • PROPERTY SALE: Selling the property can provide the funds needed to repay the loan.
  • REFINANCING: Borrowers may choose to refinance into a longer-term mortgage, like a buy-to-let mortgage, to manage repayment more comfortably.
  • DEVELOPMENT EXIT FINANCE: This is used when the loan supports property development, allowing time to sell or secure permanent financing after completion.

Why is an Exit Strategy Important?

An exit strategy is crucial when taking out a bridging loan. It’s like having a roadmap for repaying your debt. Lenders want to know you’ve got a solid plan before they hand over the cash. Here’s why it matters:

  • BOOSTS YOUR CHANCES OF APPROVAL: A clear exit plan shows lenders you’re serious about repayment. This can make them more likely to give you the loan.
  • MIGHT GET YOU BETTER TERMS: If your strategy is strong, lenders may offer lower interest rates or more flexible terms.
  • HELPS AVOID COSTLY MISTAKES: Without a plan, you could end up paying hefty fees or even losing your property.
  • KEEPS YOU ON TRACK: A good strategy helps you stay focused on repaying the loan on time.
  • PROVIDES PEACE OF MIND: Knowing how you’ll repay the loan can reduce stress and help you sleep better at night.

A well-thought-out exit strategy protects both you and the lender. It ensures you can repay the loan without financial stress and helps the lender feel confident about getting their money back.

Features of Our Bridging Loan

  • BRIDGING LOANS FROM £50,000 TO £25M: Whole of market brokerage for the best tailored loan.
  • MONTHLY INTEREST RATES FROM 0.5% PM: Affordable options to fit your plans. Terms from 12 to 36 months: flexible durations for your timelines.
  • LOAN TO VALUES UP TO 80%: Funding up to 100% with other assets.
  • INTEREST ROLL-UP OPTIONS: Manageable repayment for flexibility.
  • RE-BRIDGE LOAN OPTIONS: For existing financing.
  • RESIDENTIAL BRIDGING, DOWNSIZING, UPSIZING FINANCE: For UK and foreign properties.
  • VERSATILE FINANCING: Chain breaking, buy to let, HMO, investment, commercial properties.

Expert Mortgage Brokers offers fast, friendly, and professional service to secure bridging loans at the best rates.

Bridging loan exit strategy

What Are the Types of Bridging Loan Exit Strategies?

Here are the main types of exit strategies borrowers can use to repay their bridging finance:

Property Sale

Selling the property purchased or renovated with the bridging loan is one of the most common exit strategies. Borrowers often rely on this approach when they intend to flip the property for a profit or when using the loan to bridge a broken property chain. However, success depends on market conditions, realistic pricing, and securing a buyer within the loan term.

Refinancing

Refinancing involves replacing the bridging loan with a longer-term mortgage, such as a buy-to-let or residential mortgage. This strategy is ideal for borrowers who need more time to repay and want lower interest rates over an extended period. It’s particularly useful if the property has been improved during the loan term, increasing its value and mortgage eligibility.

Development Exit Finance

For property developers, development exit finance provides additional time to sell completed units or secure long-term financing. This type of bridging loan is often used when a project is near completion but hasn’t sold yet, offering flexibility and lower interest rates compared to standard development finance.

Cash Reserves

Using cash reserves or liquid assets is a straightforward way to repay a bridging loan. This approach avoids additional borrowing and interest costs. However, borrowers must ensure they have sufficient funds set aside and provide evidence of their availability to the lender.

Inheritance

Inheritance funds can also serve as an exit strategy. Borrowers expecting an inheritance may use it to repay their bridging loan. However, lenders typically require proof of the expected amount and timing, as delays in probate could impact repayment timelines.

Equity Release

Older homeowners may opt for equity release, allowing them to access a portion of their property’s value without selling it outright. This strategy provides funds to repay the loan while retaining ownership of the property.

Sale of Other Assets

Borrowers may sell other assets such as secondary properties, investments, or valuable items like shares or bonds. This strategy requires careful planning to ensure these assets can be liquidated quickly enough to meet repayment deadlines.

Business Sale or Profits

For business owners, selling their business or using profits from operations can be an effective way to repay a bridging loan. Lenders will typically require evidence of ongoing negotiations or consistent profitability before approving this strategy.

Pension Lump Sum

Accessing a pension lump sum can also be used as an exit strategy for older borrowers nearing retirement. While this option provides immediate funds for repayment, it requires careful consideration of tax implications and pension regulations.

Remember, each exit strategy has its own advantages and risks. Borrowers should choose one that aligns with their financial situation, ensures timely repayment, and satisfies lender requirements.

Use Our Bridging Loan Calculator

Take the guesswork out of financing with our easy-to-use bridging loan calculator. Whether you’re planning to buy a property, fund renovations, or bridge a financial gap, our tool provides instant estimates tailored to your needs. Simply input key details like the loan amount, term, and interest rate to see how much you can borrow and what your repayment might look like.

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How to Plan a Bridging Loan Exit Strategy?

Planning a solid bridging loan exit strategy is crucial for a smooth financial journey. Here’s a step-by-step guide to help you create a foolproof plan:

Assess Your Financial Situation

Take a close look at your current finances. Consider your income, expenses, and any existing debts. This will help you understand what kind of exit strategy you can realistically afford.

Determine Your Loan Purpose

Clarify why you need the bridging loan. Are you buying a new property before selling your current one? Or perhaps you’re renovating a house to sell for profit? Your purpose will guide your exit strategy.

Research Market Conditions

Study the property market in your area. Understanding trends can help you make informed decisions about selling or refinancing options.

Identify Potential Exit Routes

Consider various options like property sale, refinancing to a buy to let mortgage, or using cash reserves. Each option has its pros and cons, so weigh them carefully.

Create a Timeline

Map out a realistic timeline for your exit strategy. Remember, bridging loans are short-term, so your plan should align with the loan term.

Discuss With a Bridging Advisor

Seek expert advice from a bridging loan broker. They can provide valuable insights into exit loan options and help you navigate the complexities of bridging finance.

Develop Contingency Plans

Always have a backup plan. If your primary exit strategy falls through, you’ll need alternatives to avoid financial stress.

Get an Agreement in Principle

If refinancing is your chosen exit route, try to secure an agreement in principle from a lender. This can boost your credibility with bridging lenders.

Document Your Strategy

Write down your exit strategy in detail. This will not only help you stay organized but also impress potential bridging lenders.

Review and Adjust Regularly

Keep your exit strategy flexible. As circumstances change, be prepared to tweak your plan accordingly.

It’s not just about satisfying the bridging lender; it’s about ensuring your own financial security. So take your time, do your homework, and craft an exit strategy guide that works for you.

Why Should You Use Expert Mortgage Broker for Your Bridging Loan?

Here’s why you should use an expert broker for your bridging loan:

Expert guidance

Receive tailored and expert advice on bridging finance to meet your short-term funding needs.

FCA regulated lenders

Work with trusted, FCA-approved lenders for reliable and secure loan options.

Competitive rates

Benefit from our negotiation skills for favorable interest rates and terms.

Hassle-free process

Enjoy a stress-free experience as we handle all paperwork and lender communication.

Need quick funding to seize a property opportunity? A bridging loan could be your solution. Our bridging loan brokers are ready to guide you through the process, offering competitive rates and flexible terms tailored to your needs.