Short to medium term business loans are brilliant tools for solving a specific problem: a tax bill, a settlement, a contract, a gap. What turns a brilliant tool into a headache is not knowing how you’ll repay it. That’s what an exit plan is — and a friend who knows lending would insist you have one before you sign.
What is an exit plan?
It’s a clear answer to one question: “How will this loan be repaid in full, and when?”
For long-term loans, the answer is usually “regular repayments over many years”. For short to medium term loans, the answer is usually one of three things — and sometimes a combination.
Exit 1: Repay from cash flow
The business generates enough surplus over the term to repay the loan as you go, or to clear it at the end.
Works well when: the loan funded something that directly lifts income — a contract, stock for a busy season, equipment that lets you take on more work.
Check: that the surplus is real and reliable. Use your bank statements, not your hopes. Our guide on how much to borrow helps you test it.
Exit 2: Sell an asset
You repay the loan from the sale of something: a property, a vehicle, equipment, a business, a share in a business.
Works well when: the sale is genuinely planned, the asset is saleable, and the timeline is realistic.
Check: how long sales like this actually take, what the asset is really worth (not what you hope), and what happens if the market softens. Build in a margin for the sale taking longer and fetching less.
Exit 3: Refinance to a longer-term lender
You use the short-term loan to solve an immediate problem, then refinance to a bank or other long-term lender once your situation qualifies.
Works well when: the short-term loan fixes the very thing stopping you getting long-term finance — for example, clearing IRD debt, getting accounts up to date, or letting a credit blemish age.
Check: exactly what the long-term lender will need, and start preparing it from day one. That usually means:
- getting financial statements and tax returns completed and filed;
- keeping every repayment on time;
- keeping business banking tidy;
- checking your credit reports and fixing errors;
- not taking on new debt in the meantime.
The short-term loan buys you time. The exit plan is what you do with it.
Build your exit plan in five steps
- Choose your primary exit — cash flow, sale or refinance.
- Put dates on it. When will each step happen? Work backwards from the loan’s end date.
- Identify what could go wrong — slower sales, a delayed settlement, a bank saying “not yet”.
- Choose a back-up exit. If refinancing is Plan A, perhaps selling a vehicle or a rental is Plan B.
- Set checkpoints. Monthly, ask: are we on track? If not, act early.
An example scenario
Example scenario — for illustration only. A Christchurch hospitality business owes GST and PAYE and has accounts two years behind. The owner takes a property-secured second mortgage to clear IRD. Their exit plan:
| Month | Action |
|---|---|
| 1 | IRD cleared; separate tax account set up |
| 1–4 | Accountant completes and files overdue accounts and returns |
| 5–8 | Clean trading months build up in bank statements |
| 9 | Approach bank to refinance into existing home loan |
| Back-up | Sell the second vehicle and a piece of equipment to reduce the balance, and ask the current lender about options |
The plan isn’t complicated. It’s just written down, with dates — and that’s what makes it work.
Talk to your lender early if things change
Plans slip. A buyer pulls out, a bank wants another quarter of figures, a big customer pays late. The worst thing you can do is say nothing until the loan is due. Lenders have far more options — and are generally far more willing to use them — when they hear about problems months ahead.
Questions to ask before you borrow
- “What’s my exit, and what’s my back-up?”
- “What will the refinancing lender need, and when can I have it ready?”
- “If the sale takes twice as long, what happens?”
- “What does it cost to repay early if my exit comes sooner?”
- “What are my options if I need more time?”
Our 10 things to check before you sign covers the loan document side of these questions.
Where LendFriend fits
When we match you with a lender from our panel, we’ll talk through your exit plan with you — because a loan without one isn’t doing you a favour. If your plan looks shaky, we’ll say so and help you strengthen it. Every loan is priced on your individual circumstances, and you decide.
And if you do need funding…
That's where we come in. Tell us what's going on and we'll match you with a lender from our panel that fits — and tell you honestly if borrowing isn't the right move.
Quick questions
What happens if my exit plan falls through?
Talk to your lender as early as possible. Options may include an extension, a restructure or refinancing elsewhere, but they're far easier to arrange months ahead than days before the loan is due.
Can I refinance a private or non-bank loan to a bank?
Often, yes — especially once your financials are up to date, your credit has improved and the reason you needed short-term funding has been resolved. Plan for it from the start.