What’s Your Exit Strategy?
An exit strategy – a method of ensuring a loan can be repaid – is often cited as an essential aspect of the bridging loan process, but what’s your exit route? If you have arranged a closed bridging loan where the completion date for the sale of the property has already been determined, your exit strategy is simply the sale itself. You can be sure that the buyer has the necessary funds in place to buy, and that you’ll have the resources to pay the lender.
Things get a little more complicated when it comes to open bridging loans. In this scenario, no completion date for the purchase has been set, and there may not even have been any offers made on the property. Sales can and do fall through, which can leave some homeowners struggling to pay off the loan as quickly as they anticipated – there’s no solid exit plan.
In the case of open bridging loans, your choice of loan could be a significant part of your exit strategy. Bridging loans are traditionally known for their high interest rates as they’re considered to be a very short term solution, but as the industry is growing and financing is being accessed in this manner by increasing numbers, many banks are now in a position to be able to offer more attractive rates. First4Commercial, for example, work with lenders who are able to offer rates as little as 0.65 percent per month.
Choosing a loan wisely ensures you’re able to continue making repayments on an open bridging loan, even if things don’t quite go to plan. Having a solid exit strategy in place – such as the sale of a property – is, of course, essential, but this plan can be complemented by thinking carefully about the type of bridging loan you apply for.