Bridging loan exit strategy mistakes to avoid

Every bridging loan is short term and interest bearing, so the exit strategy is not a formality, it is the mechanism that determines whether the borrower comes out ahead or ends up paying default interest on a loan that has run past its term. Lenders assess the exit before agreeing terms, but it is the borrower who has to make it happen.

The mistakes below are rarely about the loan being unsuitable. They are almost always about the plan around it being thinner than it looked at the outset.

Naming one exit, a specific buyer, a single mortgage application, one sale, and having no fallback if it falls through is the most common mistake. Sales collapse, buyers pull out, and mortgage applications can be declined or delayed for reasons outside the borrower's control.

A stronger exit strategy names a primary route and at least one realistic fallback, for example a sale as the primary plan with refinancing onto a new bridging facility or a mortgage as the fallback if the sale is delayed.

Where the exit is a refinance, whether that is a remortgage or a new bridging facility, starting the application close to the end of the term leaves no room for the process to run long. Valuations, underwriting and legal work all take time, and a refinance started with only a few weeks of the term left has very little margin for delay.

Starting the refinance conversation well ahead of the term end, ideally as soon as it is clear the original exit may not land in time, keeps far more options open than waiting until the deadline is close.

Borrowers frequently plan around an optimistic timeline for a sale to complete or a mortgage offer to come through, based on how quickly things are supposed to move rather than how long they typically take in practice. Chains, valuations, and underwriting queries routinely add weeks to a transaction that looked straightforward at the outset.

Building a realistic buffer into the exit timeline, rather than the fastest case, means the term does not run out before the exit has actually completed.

The most damaging mistake is staying quiet once it becomes clear the exit is not going to land on time, and hoping it resolves itself before the term ends. Lenders who arrange bridging finance are generally willing to discuss an extension or help plan a refinance, but only if they hear about the delay while there is still time to act on it.

Raising the issue as soon as it is apparent, with evidence of what is actually happening on the sale, remortgage or development, gives everyone involved the best chance of avoiding default interest and recovery action.

A workable exit strategy is specific rather than general. It should set out:

• The primary route, sale, remortgage or refinance, named specifically rather than described in outline
• A realistic timeline, with a buffer for the delays that routinely happen
• A fallback option if the primary route slips or falls through
• A plan for keeping the lender informed if the timeline changes

Working through this with a broker before the loan is drawn, rather than only once a problem appears, is the single most effective way to avoid the mistakes above.