Quick answer
In private secured lending, an exit strategy is the specific event that will repay the loan in full by its maturity date, such as selling a property, refinancing to a bank, collecting a contract payment or settling another transaction. A strong exit is named, dated, backed by evidence and realistic about timing and net proceeds. Every private secured business loan needs one, because the lender is relying on it more than on monthly repayments.
Key points
- The exit is the event that repays the whole loan, not a monthly repayment plan
- Lenders want it named, dated and evidenced, with a buffer before maturity
- Sale exits must allow for agent costs and any amounts withheld at settlement
- A credible plan B makes a lender far more comfortable
- Required on
- Every loan
- Common exits
- Sale, refinance, settlement, cash flow
- Terms
- 1 to 24 months (first mortgage)
A bank lends on your ability to make repayments for decades. A private secured lender lends for months, and is repaid in one go. So the question it asks first isn’t “can you afford the repayments?” but “what event pays this loan back, and when?” That event is the exit strategy.
What are the common exit strategies?
| Exit | Typical evidence | Main risk |
|---|---|---|
| Sale of the security property | Agent appraisal, listing agreement, signed contract | Takes longer or sells for less than hoped |
| Sale of a different property | Contract of sale, settlement date | Buyer’s finance falls over |
| Refinance to a bank or non-bank | Lodged financials, broker or bank feedback, cleared arrears | Nothing has changed since the last decline |
| Contract or debtor payment | Signed contract, payment schedule, progress claims | Client pays late or disputes the claim |
| Tax refund or GST credit | Lodged BAS or return | Processing delays or reviews |
| Settlement of a business sale | Signed sale agreement, conditions | Conditions not met on time |
Business.gov.au’s advice on business loans is to make sure you’ll be able to repay before you borrow. For a short-term secured loan, that means the exit, not monthly cash flow, is what you have to prove.
What makes an exit strategy believable?
- It’s specific. “Sell the Burleigh unit, listed this week, auction in five weeks” beats “sell something”.
- It’s dated with room to spare. The loan term should cover the expected timing plus a buffer. Our short-term first mortgage page explains how the 12- or 24-month term is chosen.
- It covers the full payout. Principal, any capitalised interest and costs, not just the amount you received.
- It has a plan B. A second property that could be sold, or a refinance that could follow if the sale is slow.
The red flags guide lists what makes a lender hesitate.
Write the exit down in a few lines before you enquire: what will happen, when, who else is involved, and what proof you can show today. If you can’t fill in each of those, that gap is exactly what a lender will ask about, and it’s better to know now.
What comes off a sale before it repays the loan?
This catches many borrowers out. The sale price isn’t what lands in the settlement statement.
- Selling costs. Agent commission, marketing and legal fees.
- Foreign resident capital gains withholding. The ATO says Australian resident sellers must give the buyer a clearance certificate at or before settlement, otherwise the buyer must withhold part of the price. Certificates are free, valid for 12 months, and the ATO asks for applications at least 28 days before settlement.
- GST withholding. On sales of new residential premises or potential residential land, the ATO explains that the buyer may pay part of the price straight to the ATO at settlement, so the seller receives the balance. It is credited back through the seller’s activity statement, but not on settlement day.
Plan the net figure, not the headline price, when you test whether the exit covers the loan. Ask your conveyancer or accountant for an estimated settlement statement early; it turns a guess into a number a lender can rely on, and it shows up any surprises while there’s still time to deal with them.
Why does the exit matter to a borrower?
It sets the term, influences the amount and drives the price. A strong, evidenced exit makes a loan easier to approve and often sharper to price. A missed exit leads to default interest and, if left unchecked, enforcement. That’s why the cheapest move when an exit slips is an early conversation about a term extension.
Illustrative example: an Ipswich builder borrows $450k for nine months against two completed townhouses, planning to sell both. Before approval, the specialist works through the numbers: expected sale prices less agent fees and legal costs, the GST withholding that will come off at settlement, and a clearance certificate applied for well before each settlement. The net proceeds of one townhouse almost cover the loan alone, so the second sale becomes the plan B. Lender and builder both know where they stand from day one.
Which related terms should I know?
- Exit strategy for a short-term mortgage: the in-depth guide.
- Bridge until a property sells: a sale exit in practice.
- Discharge of mortgage: what happens when the exit settles.
Find more in the glossary, or test your exit with a specialist.
Ready to put your exit to the test?
Tell us what the property is, what’s owing on it, how much you need and exactly how you plan to repay it. Enquiring carries no credit check, your details go to one direct lender and nowhere else, and a real specialist reviews every enquiry. Honest answers about the exit and its timing get you an honest answer back, first time. See if you qualify.
Frequently asked questions
What counts as a good exit strategy for a private loan?
One that doesn't depend on hope. A signed sale contract, a property already listed at a sensible price, a bank that has seen the numbers, or a contract payment with a fixed date are all strong. The more independent evidence, the better.
Is refinancing to a bank a valid exit?
Yes, if something will change before maturity that makes the bank likely to say yes: lodged tax returns, a cleared ATO debt, a completed lease or a year of trading. A bank refinance with nothing changed since the last decline is a weak exit.
What if my exit is delayed?
Tell the lender early and show evidence the exit is still alive. An extension agreed before maturity is usually far cheaper than default charges after it.
Does a sale exit cover the full sale price?
Rarely. Agent fees, legal costs and other settlement adjustments come off. If you're an Australian resident seller without an ATO clearance certificate, the buyer must withhold part of the price. GST withholding can also apply to new residential property and potential residential land.
Can business income be the exit?
It can, where there's a clear, dated source such as a large contract payment, a tax refund or seasonal revenue. General future profits are harder to rely on for a lump-sum repayment.