Exit strategy – why this should not be an afterthought

By Shoaib Bux 27th April 2021

Bridging has become a very useful form of finance that can help property professionals quickly obtain funding for their real estate projects until a term solution is secured. These solutions are what we call exit strategies.

The exit is vital. As the short-term real estate arm of Arbuthnot Latham, we act as the bridge that allows a property professional to achieve the next phase in their real estate project.

Without a suitable exit strategy in place, it can become difficult for a property professional to secure bridging finance.

This is because the lender has no reassurance that the property professional can repay the bridging loan and move onto a more traditional form of finance or if the intention is to sell.

There are many factors which govern how much finance a property professional can secure, and which lenders will fund you. One of these factors is a feasible exit strategy.

To help with this, we have pulled together our top two exit strategies for bridging finance:

1. Cash Redemption

This involves the property professional’s ability to repay the loan with cash from an entirely different source of funds. For example, the source of funds can come from a bank account or investment maturity.

2. House flipping

Property professionals are taking advantage of the financing available to carry out ‘improvements’ or renovation work to their properties.

This can often be with the aim of increasing the value of a property before selling, but also to allow for an increased level of rental income as they retain it within their investment portfolio.

With refurbishment projects, depending on the amount of work needed on the property, lenders tend to categorise two types of refurbishment products – light refurbishment and heavy refurbishment.

Change in circumstance

A change in exit strategy is common and we are very supportive of clients, looking towards helping them achieve an exit that works for them.

A good lender will look at their client’s financial position to ensure they can cover void periods or interest should the exit become protracted.

At Arbuthnot Specialist Finance Limited (ASFL), we do not charge extension fees and have supported a number of clients with an extension or renewal of their facility

We do look at a contingency back up for exit, i.e., private treaty sale, or refinance and sale within in a restricted period of 90 days.

It should be noted that we stay in regular contact with clients throughout the loan term, allowing them to inform us of progress.

This also means that we can work through any issues that may arise. We write to all clients 90 days prior to maturity of the loan to remind them of the repayment date, to establish what their current plans are, and to give clients the opportunity to discuss any concerns they may have about exiting prior to maturity.

Exit strategies can vary depending on individual situations, resources, and capacity. What matters most is that you have the right exit strategy in place to take you and your business to the next stage.

Shoaib Bux

Shoaib Bux is Managing Director at Arbuthnot Specialist Finance. Shoaib’s specialist lending industry experience spans over 12 years. Recognised and respected for his innovative contributions in the industry, Shoaib has strong experience in all aspects of the lending cycle and has held multiple FCA regulatory roles.