What is an exit strategy?
Specialist business lending is designed to solve a problem over a defined period: clear IRD, pay out creditors, fund a turnaround, bridge to a sale. It’s generally short-to-medium term. The exit strategy is simply how the loan ends.
Banks rarely talk about exits because their loans are designed to be repaid gradually over many years. Specialist lenders talk about them a lot, because the whole arrangement depends on the exit happening.
Why lenders care
A loan with no credible exit tends to follow a familiar path: it expires, the borrower asks for more time, an extension is agreed at extra cost, and the debt grows. Nobody wants that, including the lender. So when you apply, a good lender will ask how the loan gets repaid, and will want an answer that’s specific.
The common exits
1. Refinance to a bank
The most common exit for businesses that have been through a rough patch. The specialist loan clears IRD and creditors; the business then files its accounts, builds a record of on-time payments, and goes back to a bank.
What makes it credible:
- the reason for the bank decline is being fixed (arrears cleared, returns filed, defaults paid);
- the business can show serviceability in its next set of accounts;
- a timeline, such as “accounts to 31 March filed by July, bank application in August”.
2. Sale of a property or asset
Selling a rental, a section, commercial premises, equipment or even the business.
What makes it credible:
- a realistic value, ideally supported by a valuation or appraisal;
- a timeline that allows for a normal marketing period in current market conditions;
- no dependence on a best-case price.
3. Repayment from trading
Paying the loan down from business income.
What makes it credible:
- a cash flow forecast showing the repayments fit;
- stable, evidenced trading, not a hoped-for recovery;
- a buffer for a slow month.
4. A combination
Many exits are blends: pay part from trading, then refinance the balance. Or refinance, with a sale as a fallback.
Credible vs vague exits
| Vague | Credible |
|---|---|
| “We’ll refinance with the bank later” | “Accounts filed by July; bank pre-assessment booked for August; IRD cleared at settlement” |
| “We’ll sell the section” | “Section listed with an agent in February; appraisal attached; price allows for a slower market” |
| “Trading will pick up” | “Forecast shows repayments covered from existing contracts; a buffer is built into the loan” |
Working the exit from day one
The exit shouldn’t wait until month ten. From settlement:
- Diarise the expiry date and a date three months before it.
- Set milestones. Returns filed, accounts finalised, property listed, bank meeting booked.
- Stay current on tax and repayments; a clean record is what the next lender will look at.
- Review monthly. Is the exit on track? If not, what’s changed?
- Talk early if something slips. Lenders have more options with notice.
When an exit slips
It happens: a property doesn’t sell, the bank still says no, a customer pays late. If you’re heading toward expiry without the exit in place:
- ask your current lender for a payout figure and your options;
- check whether a refinance to a different structure makes sense, as covered in refinancing out of a private or short-term lender;
- avoid letting the loan expire without a plan, as default costs can build quickly.
Exits and the rest of the plan
An exit doesn’t sit on its own. It depends on the business staying on track while the loan is in place. Three things tend to decide whether an exit happens on time:
- Tax stays current. A bank refinance is much harder if new IRD arrears have built up during the loan. Keep GST and PAYE separate and paid.
- Records get done. If the exit is a bank refinance, the bank will want filed accounts and tax returns. Book the accountant early, not in the final month.
- Cash flow is watched weekly. A simple 13-week cash flow forecast shows early if repayments or the exit timeline are slipping.
Example scenario
Example scenario — for illustration only. A Palmerston North contractor used a second mortgage to clear GST arrears and a short-term equipment loan. The exit was a bank refinance. Settlement day was also the day the owner booked the accountant to finish two years of overdue returns, set up a separate tax account, and diarised a bank meeting for the month after the accounts were due. When the bank meeting came, the file showed cleared arrears, filed returns and a clean payment record, which is exactly what the bank needed to see.
How we approach exits
When our lending specialists talk to you about a property-secured loan, from $20,000 to $1m, or an unsecured facility, the exit is part of the conversation from the start. Every loan is priced on the individual circumstances, and we look for the sharpest option available for your situation, but the exit determines whether the loan actually helps. If we can’t see a credible one, we’ll tell you.
Want to talk through your plan? Start an enquiry.