Bridging exit risk diagnostic: sale, refinance or term-out
A bridging loan is only as safe as its exit. This diagnostic works out what you will owe on the day you plan to repay, then tests that figure against the three usual exits: selling the property, refinancing it on value and rent, or terming out onto a business loan repaid from trading. The scenario table shows what a 10% lower value, a 3 or 6 month delay, or a higher long-term rate does to each exit, so you can see which one fails first before you sign.
How each exit is tested
Every exit has to clear the same number: the redemption figure on the exit date. What changes is how the money to repay it is sized, and what can go wrong.
Sale
- The test:
- Sale price, less agent and legal costs, against the redemption figure.
- What breaks it:
- A lower price, a slower sale that pushes you past term, or a buyer who pulls out after the exit date is fixed.
- Evidence to have ready:
- An agent's marketing appraisal, comparable sales, and for a refurbishment a works schedule and budget.
Refinance on value and rent
- The test:
- The smaller of loan to value (value x LTV) and interest cover (rent / (cover x stress rate)), less the new lender's fee.
- What breaks it:
- A down valuation, rent below plan or a void, a higher stress rate, or a refinance lender who wants more seasoning than your term allows.
- Evidence to have ready:
- A valuation, signed or agreed heads of terms for any lease, and an agreement in principle from the refinance lender.
Term-out onto a trading loan
- The test:
- Debt-service cover: EBITDA over all annual repayments, including the new loan, against the lender's target.
- What breaks it:
- Weaker trading, other debt you forgot to count, a higher rate or a shorter term, or accounts that are not filed in time to show the numbers.
- Evidence to have ready:
- Filed accounts, management accounts to date and a schedule of every existing repayment.
| Exit | The test | What breaks it | Evidence to have ready |
|---|---|---|---|
| Sale | Sale price, less agent and legal costs, against the redemption figure. | A lower price, a slower sale that pushes you past term, or a buyer who pulls out after the exit date is fixed. | An agent's marketing appraisal, comparable sales, and for a refurbishment a works schedule and budget. |
| Refinance on value and rent | The smaller of loan to value (value x LTV) and interest cover (rent / (cover x stress rate)), less the new lender's fee. | A down valuation, rent below plan or a void, a higher stress rate, or a refinance lender who wants more seasoning than your term allows. | A valuation, signed or agreed heads of terms for any lease, and an agreement in principle from the refinance lender. |
| Term-out onto a trading loan | Debt-service cover: EBITDA over all annual repayments, including the new loan, against the lender's target. | Weaker trading, other debt you forgot to count, a higher rate or a shorter term, or accounts that are not filed in time to show the numbers. | Filed accounts, management accounts to date and a schedule of every existing repayment. |
Source: FundBiz bridging exit risk diagnostic
The tests describe how each repayment source is sized. The limits themselves (LTV, interest cover, stress rate, debt-service cover) are set by each lender; use the figures in your own terms.
View as plain-text Markdown
### Bridging exits: how each is tested | Exit | The test | What breaks it | Evidence to have ready | | --- | --- | --- | --- | | Sale | Sale price, less agent and legal costs, against the redemption figure. | A lower price, a slower sale that pushes you past term, or a buyer who pulls out after the exit date is fixed. | An agent's marketing appraisal, comparable sales, and for a refurbishment a works schedule and budget. | | Refinance on value and rent | The smaller of loan to value (value x LTV) and interest cover (rent / (cover x stress rate)), less the new lender's fee. | A down valuation, rent below plan or a void, a higher stress rate, or a refinance lender who wants more seasoning than your term allows. | A valuation, signed or agreed heads of terms for any lease, and an agreement in principle from the refinance lender. | | Term-out onto a trading loan | Debt-service cover: EBITDA over all annual repayments, including the new loan, against the lender's target. | Weaker trading, other debt you forgot to count, a higher rate or a shorter term, or accounts that are not filed in time to show the numbers. | Filed accounts, management accounts to date and a schedule of every existing repayment. | Source: FundBiz bridging exit risk diagnostic The tests describe how each repayment source is sized. The limits themselves (LTV, interest cover, stress rate, debt-service cover) are set by each lender; use the figures in your own terms.
Worked example: a £420,000 rolled-up bridge, exit planned at month 9
Illustrative inputs, not a quote and not market rates: a limited company bridges £420,000 gross to buy and refurbish a commercial unit, at 0.9% a month rolled up over a 12-month term with a 1% exit fee. It expects to exit at month 9 with the unit worth £720,000 and let at £50,000 a year. If it overruns, the example assumes 1.8% a month and a 1% extension fee.
| Line | Figure | How it is worked out |
|---|---|---|
| Loan balance at exit | £455,271 | £420,000 x (1 + 0.9%) to the power of 9 |
| Exit fee | £4,200 | 1% of the gross loan |
| Redemption figure | £459,471 | Balance plus exit fee |
| Sale: net proceeds | £702,000 | £720,000 less 2.5% selling costs |
| Sale: headroom | +£242,529 | Break-even sale price £471,252, a fall of 34.5% from the expected price |
| Refinance: loan on value | £504,000 | 70% of £720,000 |
| Refinance: loan on rent | £571,429 | £50,000 / (125% x 7%) |
| Refinance: headroom | +£34,449 | Smaller loan less 2% fee. Break-even valuation £669,782 |
| Term-out: debt-service cover | 1.32 | EBITDA £110,000 over £30,000 existing plus £53,224 a year on the new loan (8% over 15 years) |
| Term-out: headroom | +£41,234 | Largest loan at 1.25 cover, less 1% fee |
Source: FundBiz bridging exit risk diagnostic, illustrative figures
Every figure is derived from the stated illustrative inputs. Interest compounds monthly; lenders may count days differently, so treat the redemption figure as an estimate and ask for your lender's written figure.
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### Worked example: redemption figure at month 9 and the three exits | Line | Figure | How it is worked out | | --- | --- | --- | | Loan balance at exit | £455,271 | £420,000 x (1 + 0.9%) to the power of 9 | | Exit fee | £4,200 | 1% of the gross loan | | Redemption figure | £459,471 | Balance plus exit fee | | Sale: net proceeds | £702,000 | £720,000 less 2.5% selling costs | | Sale: headroom | +£242,529 | Break-even sale price £471,252, a fall of 34.5% from the expected price | | Refinance: loan on value | £504,000 | 70% of £720,000 | | Refinance: loan on rent | £571,429 | £50,000 / (125% x 7%) | | Refinance: headroom | +£34,449 | Smaller loan less 2% fee. Break-even valuation £669,782 | | Term-out: debt-service cover | 1.32 | EBITDA £110,000 over £30,000 existing plus £53,224 a year on the new loan (8% over 15 years) | | Term-out: headroom | +£41,234 | Largest loan at 1.25 cover, less 1% fee | Source: FundBiz bridging exit risk diagnostic, illustrative figures Every figure is derived from the stated illustrative inputs. Interest compounds monthly; lenders may count days differently, so treat the redemption figure as an estimate and ask for your lender's written figure.
On plan, all three exits work, and the sale has by far the most room: the price could fall by about 34% before it failed. The refinance clears by £34,449, which sounds comfortable until you see the scenario table.
Scenario table: what fails first
The same example under five stresses. Each cell shows the verdict and the headroom: positive is money left after repaying the bridge, negative is cash the company would have to find. "Tight" means headroom under 5% of the redemption figure, a cushion FundBiz uses to flag exits with little room for error, not a lender rule.
| Scenario | Redemption figure | Sale | Refinance | Term-out |
|---|---|---|---|---|
| Plan: exit on time at the expected value | £459,471 | Covered (+£242,529) | Covered (+£34,449) | Covered (+£41,234), cover 1.32 |
| Value or sale price 10% lower | £459,471 | Covered (+£172,329) | Shortfall (-£14,943) | Covered (+£41,234), cover 1.32 |
| Exit 3 months late | £471,874 | Covered (+£230,126) | Tight (+£22,046) | Covered (+£28,831), cover 1.29 |
| Exit 6 months late | £501,786 | Covered (+£200,214) | Shortfall (-£7,866) | Shortfall (-£1,081), cover 1.24 |
| Long-term rate 1 point higher | £459,471 | Covered (+£242,529) | Covered (+£30,529) | Tight (+£12,299), cover 1.27 |
| 10% lower and 6 months late | £501,786 | Covered (+£130,014) | Shortfall (-£57,258) | Shortfall (-£1,081), cover 1.24 |
Source: FundBiz bridging exit risk diagnostic, illustrative figures
Lower value applies to both the sale price and the refinance valuation. Late exits add interest at 1.8% a month past month 12 and a 1% extension fee. The higher rate applies to the refinance stress rate and the term-out loan rate. Trading profit is held constant.
View as plain-text Markdown
### Worked example under stress: headroom by exit route | Scenario | Redemption figure | Sale | Refinance | Term-out | | --- | --- | --- | --- | --- | | Plan: exit on time at the expected value | £459,471 | Covered (+£242,529) | Covered (+£34,449) | Covered (+£41,234), cover 1.32 | | Value or sale price 10% lower | £459,471 | Covered (+£172,329) | Shortfall (-£14,943) | Covered (+£41,234), cover 1.32 | | Exit 3 months late | £471,874 | Covered (+£230,126) | Tight (+£22,046) | Covered (+£28,831), cover 1.29 | | Exit 6 months late | £501,786 | Covered (+£200,214) | Shortfall (-£7,866) | Shortfall (-£1,081), cover 1.24 | | Long-term rate 1 point higher | £459,471 | Covered (+£242,529) | Covered (+£30,529) | Tight (+£12,299), cover 1.27 | | 10% lower and 6 months late | £501,786 | Covered (+£130,014) | Shortfall (-£57,258) | Shortfall (-£1,081), cover 1.24 | Source: FundBiz bridging exit risk diagnostic, illustrative figures Lower value applies to both the sale price and the refinance valuation. Late exits add interest at 1.8% a month past month 12 and a 1% extension fee. The higher rate applies to the refinance stress rate and the term-out loan rate. Trading profit is held constant.
Two things stand out. The refinance, which looked fine on plan, fails on a 10% down valuation, because the new loan is capped by value while the bridge balance is not. And a 6-month delay turns a £459,471 redemption into £501,786, which sinks both the refinance and the term-out without anything else going wrong. The sale survives every scenario here because no lending ratio caps it; its real risks are the buyer and the timing, which is why the late-exit rows matter for it too.
Run the diagnostic on your own bridge
The inputs start at the worked example. Replace them with your offer and your own figures; leave rent at 0 if the property will not be let, and EBITDA at 0 if a term-out is not on the table.
Reading the result
- Plan for the late case, not the planned one. If the exit only works on time, take a longer term at the outset. If your lender charges interest only for the time you hold the loan, an unused month of term costs little on a rolled or serviced deal; running past the term costs overrun interest and an extension fee. On a retained deal, check whether unused interest is refunded.
- Get the refinance lender's terms early. A refinance exit rests on another lender's valuation and cover test. An agreement in principle before you draw the bridge turns the biggest unknown into a number.
- Keep a second exit. A property that can be sold or refinanced gives you somewhere to go if one route slips. If only one exit clears in the scenario table, treat that as the risk to fix.
- Count every repayment in a term-out. Leaving out an asset finance agreement or a director loan serviced by the company is the easiest way to overstate debt-service cover. The DSCR calculator walks through the full count.
FAQs
What is a bridging exit?
The exit is how the bridge gets repaid: usually a sale of the property, a refinance onto a longer-term commercial mortgage or investment loan, or a term-out onto a business loan repaid from trading. Bridging lenders look hard at the exit, because a bridge that cannot be repaid on time runs into overrun interest and fees.
What does the redemption figure include?
The loan balance on the day you repay plus any exit fee, plus any extension fee if you have gone past term. On a rolled-up deal the balance includes all the interest added since drawdown. On a retained deal the interest was deducted up front, and on a serviced deal you paid it monthly, so the balance inside the term is the gross loan. Your lender issues the exact figure; ask for it in writing before you exchange on a sale or accept a refinance offer.
Why can a refinance exit fail when a sale would not?
Because the new lender caps the loan twice: once on value (loan to value) and once on rent (interest cover at a stress rate). The rolled-up bridge balance keeps growing while the refinance loan is fixed by the valuation, so a small down valuation or a few months of delay can open a gap. In the worked example the refinance clears with room to spare on plan, but a 10% lower valuation leaves a shortfall.
What happens if I run past the bridging term?
It depends on the facility letter. Lenders may charge a higher default rate, an extension fee, or both, and may start enforcing their security. This diagnostic adds interest at your overrun rate to the balance monthly and charges the extension fee once, which is a cautious way to see the effect. Replace both with the figures in your own offer.
What is a term-out?
Repaying the bridge with a longer-term loan serviced from the business's trading profits rather than from rent or a sale, for example when a company buys its own premises on a bridge and then moves onto an owner-occupier loan. The lender sizes that loan on debt-service cover, so the test here is EBITDA against all annual repayments.
Does this tell me whether a lender will approve the exit?
No. It shows whether your own figures clear the redemption figure and how much a lower value, a later exit or a higher rate would take out. Refinance lenders set their own LTV, cover and stress rules, and those differ by lender and asset. Put their actual terms into the inputs once you have them.
Related
- Bridging total cost calculator Gross vs net advance and the true cost over the days you actually hold the loan.
- Commercial mortgage calculator The monthly payment on the loan a refinance exit would move you onto.
- DSCR calculator Debt-service cover for a term-out, with its own stress test.
- Bridging exit strategies guide The exit routes in more depth, and what lenders expect to see for each.
- Commercial bridging loans When bridging fits, when it doesn't, and who lends.
Next step
If your exit holds up, you can send an enquiry. We pass your details to a business finance broker, who will contact you about your options and may introduce you to lenders. FundBiz does not run a credit check.
Send an enquiry →Limited companies, LLPs and partnerships with four or more partners only.
This is general information, not financial or legal advice. By Adam Parker. FundBiz is owned and operated by Best Business Loans Ltd, directed by Oliver Mackman. Last updated: .