Quick answer
An exit strategy is the specific event that will repay a short-term private mortgage — usually selling a property, refinancing to a bank, settling another sale or collecting business income. Lenders want the exit named, dated and backed by evidence such as a contract, a bank's indicative approval or an agent's listing plan, with the loan term set longer than the exit needs so a short delay doesn't become a crisis.
Key points
- Name one primary exit and one backup before you apply
- Set the term with a buffer — the exit date plus breathing room, not the exit date itself
- Evidence beats optimism: contracts, bank letters, agent plans and lodged returns
- Prepaid or capitalised interest protects cash flow but must fit inside the equity
- If the exit slips, tell the lender early — options shrink as the expiry date nears
A bank asks, “Can you afford the repayments for the next 25 years?” A private lender asks something sharper: “How, and when, does this loan get repaid?” That answer is your exit strategy, and on a short-term mortgage it carries more weight than almost anything else in the file.
The good news is that a strong exit isn’t about having a perfect business or spotless credit. It’s about having a clear, dated event that turns into cash, and showing proof that the event is real. This guide explains how to build one.
What is an exit strategy, and why is it the first thing a private lender checks?
An exit strategy is the specific way the loan will be repaid in full at or before the end of the term. Because private secured loans are short — private first mortgages run for 1 to 24 months, and second mortgages and caveat loans are typically shorter — the lender is not relying on years of monthly repayments. It is relying on one event.
That’s why a vague answer like “we’ll sort it out” or “business should pick up” doesn’t work. The lender needs to see:
- What the event is (a sale, a refinance, a contract payment).
- When it is expected to happen.
- How much it will produce, after costs, compared with what will be owing.
- What could delay it, and what you’ll do if it does.
Which exits do lenders accept, and how strong is each one?
Not all exits carry the same certainty. The table below compares the common ones.
| Exit | What makes it convincing | Main thing that can go wrong | Good backup |
|---|---|---|---|
| Sale of the security property | Agent appraisal, marketing plan, realistic price, clean title | Slow campaign or a price below expectations | Refinance, or sale of another asset |
| Contracted sale already on foot | Signed contract, deposit paid, settlement date | Buyer’s finance falls over or settlement is delayed | Re-list, or refinance |
| Refinance to a bank | Lodgements up to date, clear reason the bank will now say yes, early feedback from a bank or broker | Bank’s assessment takes longer, or it offers less than hoped | Sale of the security or another property |
| Sale of other property or business asset | Listing or contract, equity in that asset | Timing of the other sale | Refinance |
| Business cash flow or a large receivable | Signed contract, payment schedule, history with that client | Payment delays or disputes | Sale or refinance |
A sale that is already contracted is close to the strongest exit there is. A plan to “refinance once the books look better” is acceptable too, but it needs more evidence because it depends on a third party saying yes in future.
How do you match the loan term to the exit?
This is where many borrowers trip themselves up. They pick a term that matches the best-case timeline exactly, then a buyer’s finance falls over or a bank asks for one more document, and suddenly the loan is due before the money arrives.
A better approach:
- Work out the realistic exit date. For a sale, add the campaign, the contract period and settlement. For a refinance, allow time to fix the issue first, then for the bank’s own process.
- Add a buffer. A few months of breathing room is cheap insurance compared with a loan expiring with no exit in hand.
- Check the term options. Private first mortgages can run for 1 to 24 months. If your exit realistically needs more than a year, a 24-month first mortgage may be a better fit than a shorter second mortgage. Our page on short-term first mortgages explains how the term is chosen.
How does interest affect the exit?
On a private mortgage, interest can be prepaid or capitalised (added to the loan), so there may be no monthly repayments during the term. That is a huge help for cash flow, but it changes the arithmetic at the end.
If interest is capitalised, the balance grows each month, so the exit must cover the original loan plus the accrued interest and the costs of discharging the mortgage. If interest is prepaid, it’s taken out of the advance at settlement, so you receive less up front but the amount owing at exit is clearer. Either way, the exit proceeds need to comfortably exceed what will be owing. Our explainer on prepaid or capitalised interest shows both structures side by side.
What evidence turns an exit plan into an approval?
Lenders believe paper, not projections. Depending on your exit, the strongest evidence includes:
- For a sale: a written appraisal or marketing proposal from a local agent, the agency agreement if signed, and any offers received.
- For a contracted sale: the signed contract and confirmation of the deposit.
- For a refinance: proof the obstacle is being fixed (returns or BAS being lodged, an ATO payment arrangement or clearance, a lease signed), plus any indicative feedback from a bank or broker.
- For business income: the contract, the payment schedule and evidence of past payments from that client.
- For developers: a sales schedule for completed stock and agent feedback on pricing. If you’re holding finished units while they sell, see residual stock loans.
How does an ATO debt fit into an exit plan?
A common scenario: a business owes the ATO, the bank won’t lend while the debt is outstanding, and the debt keeps growing. The ATO notes that tax debts on a payment plan continue to accrue the general interest charge, which compounds daily. And from 1 July 2025 that charge can’t be deducted, however old the underlying debt is.
Some owners respond by clearing the debt with a property-secured private loan, bringing lodgements up to date, and then refinancing to a bank once the ATO issue is off the file. The refinance is the exit; clearing the tax debt is what makes the refinance possible. Lenders consider ATO debt case by case — our page on second mortgages with bad credit or ATO debt covers that situation in more depth.
Illustrative example: A Sunshine Coast developer owns three completed townhouses worth about $900k each, with no debt on two of them. To fund the deposit on a new site, the developer borrows $700k on a private first mortgage over the two debt-free townhouses (illustrative LVR of about 39%), with interest capitalised. The primary exit is the sale of both townhouses, which the agent expects to take four to six months. The term is set at 12 months — double the expected sale time. The backup exit is refinancing the remaining unsold townhouse with a bank. When the first townhouse sells in month five, its proceeds repay the loan in full at settlement, and the second townhouse is released from the security.
What happens when the exit arrives?
When the sale settles or the refinance funds, the private loan is repaid from those proceeds. Your solicitor obtains a payout figure from the lender, and on settlement day funds are exchanged electronically while the documents are lodged with the land registry. PEXA describes this as the point where funds move and eligible documents are lodged, typically within minutes once all parties are ready.
The lender then signs a discharge of mortgage. Land Use Victoria describes a discharge as a dealing lodged after a mortgage has been repaid; once it is registered, the reference to the mortgage is removed from the title. If the security was a caveat, the caveat is withdrawn instead. Either way, the property is clear of the private loan.
Which exit-strategy mistakes trip borrowers up most often?
- Counting on a price, not a range. If the sale needs a top-of-market result to clear the debt, the exit is fragile.
- Forgetting costs at exit. Agent’s commission, legal fees and discharge costs all come out before the lender is repaid.
- Relying on a refinance without fixing the reason the bank said no. If nothing changes, the answer probably won’t either.
- Having only one plan. A backup exit that you’ve thought through in advance is worth far more than one you invent in the last month.
What should you do if the exit starts to slip?
Plans change. Buyers walk, banks ask for more, projects run late. What matters is how early you act.
- Talk to the lender as soon as you see a problem, not when the loan is days from expiry.
- Bring evidence: offers, agent feedback, the bank’s outstanding conditions.
- Switch to the backup exit early if the primary one is clearly off track — for example, list the property if a refinance is stalling.
- Don’t let costs drift unnoticed. If interest is capitalised, recheck that the exit still covers the growing balance.
Ready to test your exit with a specialist?
If you can name your exit and roughly when it lands, you’re already most of the way to a sensible private loan. The next step is to see whether the property and the numbers line up — our equity calculator gives a quick first read.
Then send us the details of your property and your exit plan. It’s a 60-second enquiry with no credit check, and it goes to one specialist, not to a queue of lenders. Be exact about the property’s address, what is owing and when you expect the money to arrive — the more accurate the picture, the more reliable our answer. Check whether your deal qualifies.
Frequently asked questions
What exit strategies do private lenders accept?
The common ones are selling the security property or another asset, refinancing to a bank or other long-term lender, settling a sale that is already contracted, and repaying from business cash flow such as a large contract payment. The lender wants to see that the exit is realistic within the term and supported by documents.
Can the exit be refinancing to a bank?
Yes, and it's one of the most common. It's stronger when you can explain what will change before you apply to the bank — returns lodged, an ATO debt cleared, a project finished or a lease signed — and ideally show early feedback from a bank or broker.
How long should the loan term be compared with my exit?
Longer than the exit needs. If you expect a sale to settle in seven months, a 12-month term gives room for a slow campaign or a delayed settlement. Private first mortgages are available for terms of 1 to 24 months, while second mortgages and caveat loans are typically shorter.
What happens if my property doesn't sell in time?
Speak to the lender as soon as the timeline looks shaky, not on the last week of the term. Bring the facts — offers received, agent feedback, a revised plan — and a backup exit such as a refinance. The earlier the conversation, the more practical the options tend to be.
Does an exit strategy matter more than my credit history?
For a private secured loan, usually yes. Bad credit, past defaults and ATO debt are considered case by case, but equity in the property and a believable exit carry the most weight in the decision.