Why Your Exit Strategy Is the Most Important Part of Any Bridge
When applying for **bridging finance**, most borrowers focus on the property, the purchase price, and the interest rate. But the element that matters most to lenders — and should matter most to you — is your **exit strategy**.
The exit strategy is your plan for repaying the bridging loan. It answers the question: "How and when will the lender get their money back?"
A clear, credible, evidenced exit strategy **determines** whether your application is approved, what rate you pay, and ultimately whether your investment succeeds or becomes a costly problem.
The Consequences of a Poor Exit Strategy
Before exploring the options, understand what happens when exits go wrong:
- Extension fees: If you cannot repay on time, the lender may extend — but at a higher rate, typically 1% to 3% per month, plus an extension fee
- Default interest: If the loan falls into formal default, penalty rates apply. These can be 2% to 4% per month
- Legal action: Persistent default leads to the lender appointing receivers or commencing repossession proceedings
- Forced sale: The property is sold, often below market value, to recover the lender's debt. Any shortfall may be pursued against you personally
- Credit damage: Default is recorded on your credit file, affecting your ability to borrow in future
None of this needs to happen if you plan your exit properly from the outset.
**Key Takeaway:** Your exit strategy is not a box-ticking exercise for the lender. It is your financial safety net. Plan it with the same rigour you apply to finding and negotiating the property deal itself.
Exit Strategy 1: Refinance to a Commercial Mortgage
The most common exit for commercial bridging loans is refinancing onto a long-term [commercial mortgage](/services/commercial-mortgages). This works well when:
- The property will be income-producing (tenanted or owner-occupied) after the bridge period
- The property meets standard commercial mortgage criteria (good condition, clear use, adequate value)
- Your business or rental income can service the monthly mortgage payments
- You want to hold the property long-term
How to Evidence This Exit
To strengthen your bridging application, provide:
- A Decision in Principle (DIP) from a commercial mortgage lender. This demonstrates that a lender has assessed your circumstances and is willing to proceed, subject to valuation
- Comparable evidence showing the property's post-works value supports the required LTV
- Income projections showing the property will generate sufficient income to service the mortgage
- Your track record of successfully managing commercial property
Timing Considerations
A commercial mortgage application typically takes 6 to 12 weeks. Start the process at least 3 months before your bridge expires. If your bridge is funding a refurbishment, begin the mortgage application as soon as the works are substantially complete.
Risks
- Down valuation: The property may value at less than expected, reducing the available mortgage
- Income shortfall: If rental income is lower than projected, the mortgage lender may not approve
- Market changes: Interest rate rises or lending policy changes during your bridge period may affect availability
- Condition issues: The mortgage valuer may flag issues that need resolving before they will lend
**Mitigation**: Work with a broker who arranges both bridging and commercial mortgages. At Commercial Mortgages Broker, we plan the exit alongside the bridge from day one, ensuring the refinance is achievable before you commit to the purchase. [Speak to us](/contact).
Exit Strategy 2: Sale of the Property
Selling the bridged property is the second most common exit. This works well for:
- Refurbish-and-sell projects where you add value through improvement and sell at a profit
- Properties purchased below market value that can be resold quickly at full price
- Development projects where the completed units are sold to end buyers
- Land with planning permission that is more valuable than the land you purchased
How to Evidence This Exit
- Comparable sales evidence: Recent sales of similar properties in the area at your target price
- Agent appraisal: A marketing appraisal from a reputable commercial agent confirming the achievable sale price
- Marketing plan: How and when you will market the property
- If already under offer: Heads of terms or a sale memorandum from the buyer
Timing Considerations
Commercial property sales take longer than residential. Allow:
- 3 to 6 months for marketing and agreeing a sale
- 2 to 4 months for legal completion after agreeing terms
- Total: 5 to 10 months from listing to completion
If your bridge term is 12 months, start marketing no later than month 3 to ensure completion before expiry.
Risks
- Market slowdown: Fewer buyers, longer marketing periods, lower offers
- Buyer finance issues: Your buyer's mortgage or funding may collapse
- Overpricing: Setting the asking price too high delays the sale
- Legal complications: Title issues or lease problems may emerge during the buyer's due diligence
**Mitigation**: Price realistically from the outset. Have a contingency plan (e.g., refinance as a backup exit) in case the sale takes longer than expected.
Exit Strategy 3: Sale of Another Asset
Sometimes the exit does not involve the bridged property at all. Instead, you repay the bridge from the sale of a different asset:
- Another property you own that is already on the market or about to be listed
- A business that is being sold
- Investments that are maturing or being liquidated
- Inheritance that is going through probate
How to Evidence This Exit
- Proof the asset exists: Ownership documentation, valuation, or investment statements
- Evidence the sale or maturity is progressing: Marketing particulars, heads of terms, probate application, or investment maturity date
- Realistic timeline: The asset sale or maturity must complete before your bridge expires
Risks
- The other sale may not complete on time — or at all
- The asset may sell for less than expected, leaving a shortfall
- You are relying on two transactions completing, which doubles the risk
**Mitigation**: This exit works best when the other asset sale is already progressing. Lenders are sceptical of exits based on assets that have not yet been marketed.
Exit Strategy 4: Development Finance
For land purchases or properties requiring significant development, the exit from the bridge may be a transition into [development finance](/services/development-finance).
How This Works
- You use the bridge to acquire the land or property
- During the bridge period, you secure planning permission and finalise your development plans
- You arrange a development finance facility
- The development loan repays the bridge as its first drawdown
- Further drawdowns fund the construction
How to Evidence This Exit
- Planning status: Full planning permission (or evidence of strong prospects for securing it)
- Development appraisal: Detailed financial model showing the scheme is viable
- Professional team: Evidence you have engaged an architect, contractor, and quantity surveyor
- Lender interest: A DIP from a development finance lender
Risks
- Planning refusal: If planning is not granted, the development finance exit fails
- Build cost inflation: Rising construction costs may make the scheme unviable
- Lender appetite: Development finance is a specialist market; terms can change quickly
Building a Robust Exit Plan
The strongest bridging applications feature exit strategies with the following characteristics:
Primary and Secondary Exits
Always have a **Plan B**. If your primary exit is a refinance, your secondary might be a sale. If your primary exit is a sale, your secondary might be a refinance. Lenders take comfort from knowing there is a fallback.
Evidence
Every claim about your exit needs supporting evidence. "I will refinance" is not enough. "I have a DIP from Lender X at 75% LTV based on a projected value of £Y, here is the letter" is what lenders want to see.
Realistic Timelines
Do not assume best-case scenarios. Planning applications get delayed. Refurbishment projects overrun. Property sales take longer in a weak market. Build realistic timelines with contingency.
Contingency Budget
Ensure you have cash available to:
- Cover bridging costs if the exit is delayed by 2-3 months
- Fund an extension if one is needed
- Meet any shortfall if the property values at less than expected
**Key Takeaway:** The best exit strategies are evidenced, have a Plan B, use realistic timelines, and include financial contingency. Approach your exit with the same commercial discipline you apply to the acquisition.
When Exits Go Wrong: What to Do
Even well-planned exits can face problems. If your exit is at risk:
Act Early
Do not wait until the bridge is about to expire. If you foresee a problem 3 months ahead, address it immediately. Contact your broker to explore options.
Communicate With the Lender
Lenders prefer proactive communication. If you explain the situation early and present a revised exit plan, they are far more likely to work with you than if you go silent.
Explore Extensions
Most bridging lenders will consider extending the loan, usually for:
- An extension fee of 1% to 2%
- A higher monthly interest rate
- Evidence that the revised exit is achievable within the extended term
Consider Alternative Exits
If your planned exit has failed, is there another way to repay?
- Can you refinance with a different lender?
- Can you sell the property at a reduced price that still covers the debt?
- Can you raise additional funds from personal resources or other investments?
- Can a business partner or investor provide the funds?
Seek Professional Advice
If your bridge is heading towards default, engage a specialist adviser immediately. The earlier you act, the more options you have and the better the outcome is likely to be.
How We Help With Exit Planning
At Commercial Mortgages Broker, exit planning is built into every bridging application we arrange:
- Before the bridge: We assess the exit strategy rigorously and only proceed if it is credible
- During the bridge: We monitor progress and begin the refinance process in good time
- If problems arise: We have relationships with dozens of lenders and can pivot to alternative exits quickly
Because we arrange both bridging and [commercial mortgages](/services/commercial-mortgages), we can plan the full financing journey — not just the first step.
[Contact us](/contact) to discuss your bridging finance requirements and exit strategy.
Frequently Asked Questions
What is the most common exit strategy for bridging finance?
Refinancing onto a long-term commercial mortgage is the most common exit. The borrower uses the bridge to acquire or improve the property, then transitions to a conventional mortgage once the property meets standard lending criteria.
Can I have more than one exit strategy?
Yes, and lenders encourage this. A primary exit (e.g., refinance) supported by a secondary exit (e.g., sale) demonstrates that the bridge can be repaid even if your preferred route encounters problems.
What evidence do lenders need for the exit strategy?
Lenders want documentary evidence: a DIP from a refinance lender, comparable sales evidence, agent appraisals, heads of terms on a sale, or proof of maturing investments. The more concrete the evidence, the stronger your application.
What happens if my exit strategy fails?
Contact your broker and the lender immediately. Most lenders will consider an extension if you communicate early and present a revised exit plan. Delays and silence lead to enforcement action, which benefits no one.
Should I arrange my exit before applying for the bridge?
Ideally, yes. Having a refinance DIP in place before your bridge completes strengthens your application, secures better terms, and reduces risk. At minimum, confirm that your exit is achievable with your broker before committing.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*