Exit strategies private lenders accept, and the ones they don't

Banks lend on serviceability: can your regular income cover regular repayments for years? Private lenders usually lend for months, not years, and expect to be repaid in one go. So the question that matters most isn’t “can you afford the repayments?” It’s “what event will repay this loan, and when?”

That event is the exit. A strong exit can carry a deal with average security and a patchy credit history. A weak exit can sink a deal with excellent security. Here’s how lenders think about it.

What makes an exit strong

Lenders test every exit against four criteria:

Test	Question the lender asks
Specific	What exactly will happen, and when?
Evidenced	What documents show it’s real?
Achievable	Can it realistically happen within the term?
Backed up	What happens if it doesn’t?

An exit that passes all four is one a lender can rely on.

Exits lenders accept

Refinance with a bank

The most common exit. A private loan solves an immediate problem, and a bank takes over once it’s comfortable. It works well when there’s a clear reason the bank can’t lend today but will be able to soon:

• an ATO debt that the private loan clears
• tax returns or accounts that will be lodged within the term
• a business that’s recently restructured and needs a trading history
• a valuation shortfall that will resolve with time or improvements

Evidence that helps: an accountant’s letter on lodgement timing, a bank’s indicative approval or a broker’s assessment of when the business will meet bank criteria.

Sale of property

Selling the security property, or another property, is a clean exit because the proceeds are tangible and can be calculated.

Evidence that helps: an agent’s written appraisal, a listing agreement, an exchanged contract or recent comparable sales. Lenders will deduct agent’s fees, capital gains tax considerations and any other debts from the expected proceeds to see what’s really available.

Contracted payment

A known payment from a customer, government body or insurer, due on a specific date.

Evidence that helps: the contract, the invoice, the customer’s payment history and any correspondence confirming the payment date. Lenders consider who the payer is. A government department is a stronger payer than a struggling small customer.

Sale of stock, equipment or a business

Selling stock bought with the loan, surplus equipment or a business unit.

Evidence that helps: purchase orders, valuations of equipment, signed heads of agreement or an accountant’s projections.

Equity injection

A partner, investor or family member putting money into the business.

Evidence that helps: a signed agreement, proof of the investor’s funds and a clear timeline.

Exits that worry lenders

“The business will trade out of it”

Hoping future profits will repay a lump-sum loan within a year is rarely convincing on its own, especially if the business needed the loan because cash flow was tight. It can work as part of an exit when supported by strong projections, but rarely as the whole exit.

Refinance with no path

“I’ll refinance with a bank” isn’t enough if the bank has already said no and nothing will change. Lenders ask why the bank will say yes next time.

Another private loan

Refinancing into another private loan is sometimes necessary, but planning for it from the start suggests the problem isn’t being solved, just moved.

Timelines with no buffer

An exit expected in month eleven of a twelve-month loan leaves no room for delay. Sales fall through, payments run late, banks take longer than promised. Lenders like a buffer of at least two to three months.

Always have a backup

The best exit plans have two layers. For example:

• Main exit: bank refinance in month nine, once the ATO debt is cleared and accounts are lodged.
• Backup exit: sale of an investment property, which on an agent’s appraisal would clear the loan with room to spare.

A backup turns a single point of failure into a plan. It also gives the lender confidence to offer a better amount or term.

Matching the term to the exit

Choose a loan term based on the exit, not the other way around.

Exit	Typical time needed	Suggested term
Contracted payment due in 60 days	2 months	3 to 4 months
Property already under contract	1 to 3 months	4 to 6 months
Property to be listed	4 to 9 months	9 to 12 months
Bank refinance after accounts lodged	6 to 12 months	12 months
Business trading improvement plus refinance	12 months or more	12 to 24 months

Remember to factor in any minimum interest period. Repaying early may still cost a minimum number of months’ interest.

When an exit is running late

Exits slip. When they do, the worst response is silence. As soon as you think the exit might be late:

1. tell the lender, with an explanation and a revised date
2. ask about extension terms and costs
3. activate your backup if it’s needed
4. speak to us about refinancing if the current lender won’t extend

Lenders deal with late exits regularly. What they don’t like is finding out on the expiry date. Our private loan refinance page covers options when time is running out.

Costs that eat into the exit

An exit has to cover more than the loan amount. When you work out whether a sale or payment will repay the loan, include capitalised interest if interest is being added to the balance, discharge fees, agent’s commission and marketing costs on a sale, any tax payable on the sale, and other debts secured on the same property that must be paid first. Owners sometimes find a sale that looked comfortable on the headline price is much tighter once these are counted. Do the sum honestly before you borrow, not when the sale contract arrives.

Test your plan

Before you enquire, use our exit plan checker to stress-test your exit. It asks the questions a lender will ask and highlights gaps.

A worked example

A Southport importer needed $400,000 for twelve months. The main exit was a bank refinance once the company’s tax returns were lodged in month six and showed a return to profit. The backup was the sale of a holiday unit in Kingscliff, appraised by an agent at enough to clear the loan. The lender approved the full amount with a twelve-month term. The bank refinance happened in month eight, and the holiday unit was never needed.

Tell us your exit

When you enquire, tell us how the loan will be repaid and when. We’ll tell you how a lender is likely to view it and how to strengthen it. There’s no credit check when you first enquire, and your file isn’t sent around the market. Accurate answers help us match you first time.

Start your enquiry, or read about the three questions every private lender asks first.