Most non-bank and private business loans are short to medium term. They’re bridges, not destinations. That’s what makes them fast and flexible, and it’s also why the single most important question is: how does this end? Answer it before you borrow, and most of the risk in short-term lending goes away.
What is an exit strategy?
It’s your plan for repaying the loan in full when it matures. Lenders will ask for it; more importantly, you need it. Without a clear exit, a short-term loan can drift into an expensive long-term one.
The four main exits
1. Trading cash flow
Repaying from the business’s own earnings over the loan term.
Strong when: repayments are comfortably covered by current cash flow, and the loan funds something that increases earnings (stock that sells, equipment that produces). Weak when: it relies on optimistic sales forecasts or on trading improving without a clear reason.
2. Sale of an asset
Selling property, equipment or a business unit to repay.
Strong when: the asset is realistic to sell in the time available at a conservative price, ideally already listed or under contract. Weak when: it depends on a rising market or a buyer who doesn’t exist yet.
3. A known payment
A contract payment, insurance settlement, retention release or other identifiable receipt.
Strong when: it’s contractually due with a date, from a reliable payer. Weak when: it’s disputed, conditional or from a payer with a slow track record.
4. Refinance
Moving the loan to a bank or longer-term lender once your position improves: accounts finalised, credit record repaired, tax cleared.
Strong when: you know exactly what the refinancing lender needs and have a realistic timeline to deliver it. Weak when: it assumes the bank will say yes without having asked what it needs.
See switching from a bank to a non-bank and back again.
Testing your exit: the five questions
- Is it specific? “Refinance with our bank once FY26 accounts are done in March” beats “refinance later”.
- Is the timing realistic? Add a buffer. Accounts, valuations, consents and bank approvals all take longer than hoped.
- Is it in your control? Exits that depend on your own actions are stronger than those depending on others.
- What does it depend on? List the assumptions. Property values? Sales volumes? A customer paying?
- What’s plan B? If the first exit slips by three months, what happens?
Matching loan term to exit
| Exit | Match the loan term to… |
|---|---|
| Trading cash flow | The period over which repayments are comfortably affordable |
| Asset sale | Realistic marketing and settlement time, plus a buffer |
| Contract payment | The payment date, plus a buffer for slippage |
| Refinance | Time to fix the underlying issue and complete the new lender’s process |
Warning signs to watch during the loan
- The thing that was meant to fix itself hasn’t started (accounts still not done, property not listed).
- Tax arrears are building again.
- You’re considering another short-term loan to meet this one’s repayments.
If any of these appear, speak to your accountant and your lender early.
An example exit plan
Example scenario (illustrative only): A Marlborough vineyard services business takes a property-secured loan to buy a second harvester before vintage. Primary exit: refinance into asset finance and a bank facility once the season’s contract income shows in the accounts. Timeline: accounts in June, bank application in July, refinance by September, with the loan term set to allow until year-end. Plan B: sell the older harvester and repay part from harvest receipts.
Why lenders care, and why you should
The Reserve Bank has noted smaller firms’ cash buffers thinning over recent years. Thin buffers make exits more fragile. A lender who asks hard questions about your exit is doing you a favour.
Exits that sound good but often aren’t
- “The business will be doing better by then.” Possibly, but without a specific reason (a signed contract, a new product live, costs already cut), it’s a hope.
- “We’ll sell the house if we have to.” A last resort can be a valid backup, but it shouldn’t be plan A unless a sale is genuinely intended.
- “Another lender will refinance it.” Only if you know which lender and what they’ll need, and you’re confident you’ll meet it.
Write it down
Put your exit on one page: the primary route, the date you expect it, the steps and who’s responsible for each, and the backup. Share it with your accountant. It becomes a checklist you can tick off during the loan, and it’s exactly what a lender wants to see.
Where we fit
We arrange property-secured business loans from $20,000 to $1m and unsecured loans and lines of credit. A lending specialist will talk through your exit with you from the first call, including whether a short-term loan is the right tool at all.