What happens if your bridging loan exit strategy fails?

A bridging loan is designed to be repaid over a short period, usually through the sale or refinancing of a property. But what happens if the sale falls through, the refinance is delayed, or the project takes longer than expected?

If your repayment date is approaching and your original exit strategy is no longer achievable, you may still have options. The key is to understand the loan terms, speak to your lender, and assess what can realistically be completed before the deadline. The position can be more complex where the lender holds a second charge, as the rights and practical options available may differ from those of a first charge lender.

If you are concerned about repaying a bridging loan, contact our solicitors for advice on your options.

Why do bridging loan exit strategies fail?

An exit strategy is your plan to repay the bridging loan at the end of its term. Even where the original plan was sound, circumstances can change.

Common reasons for an exit being delayed or failing include:

• A property sale falling through or taking longer than expected.
• A valuation coming in lower than anticipated.
• A refinancing application being declined or delayed.
• Refurbishment or development work running over budget or behind schedule.
• Planning, title, or leasehold issues affecting a sale or refinance.
• A change in the borrower’s financial position or a lender’s requirements.

Whatever the reason, the priority is to establish how much time remains, what the loan documents require, and whether a workable alternative exists. For more on planning a repayment route, read our guide to bridging loan exit strategies.

What should you do if you cannot repay your bridging loan on time?

Start by reviewing your facility agreement and contacting your lender or broker. Don't assume the lender will extend the loan automatically, even if a sale or refinance is progressing.

Gather the loan and security documents, together with any relevant correspondence with your lender or broker. Your solicitor can use these to help you review:

• The repayment date and the amount outstanding.
• The interest, fees, and any charges that may apply after the repayment date.
• The circumstances in which the loan may be treated as being in default.
• The security given to the lender, including any personal guarantees.
• Whether the lender has agreed to any extension or other revised terms.

It is also important to identify what has gone wrong with the original exit and what evidence you can provide of an alternative. For example, a lender considering an extension may want to see progress on a sale or refinance, rather than a general expectation that funds will become available.

Can you extend a bridging loan?

Some lenders may agree to extend a bridging loan, but an extension is not guaranteed. The lender will usually want to understand why repayment has been delayed, how much additional time is needed, and how the loan will ultimately be repaid.

The lender may require updated information, such as a valuation, evidence of a sale, or details of a refinancing application. An extension may also involve further interest, fees, revised terms, or additional security.

Before agreeing to an extension, consider the full cost and whether you can achieve the revised exit within the extra time. Your solicitor can review the proposed documentation and explain any changes to your obligations.

Can you refinance with another lender?

Refinancing may be an option if your original lender will not extend the facility, or if another product better suits the revised repayment plan. This could involve a longer-term mortgage or, in some circumstances, another short-term facility.

However, a new lender will carry out its own checks. Depending on the transaction, these may include a valuation, title review, assessment of the borrower’s finances, and checks on the property’s condition or income.

You will also need to establish whether the new loan will provide enough to repay the existing facility, including interest and fees. If there is a shortfall, you will need another source of funds to complete the refinance.

Where the borrower is a limited company or special purpose vehicle, the new lender may require company documents, security, and personal guarantees. These requirements should be factored into the timetable.

Refinancing can provide a route out of the existing loan, but it should not simply postpone a problem without a credible repayment plan. Our guide to why bridging loans get delayed explains some of the issues that can affect a new application.

What if the property sale is delayed or falls through?

If your planned exit depends on a sale, establish where the transaction stands and whether completion remains realistic before the loan is due.

A buyer may have withdrawn, the chain may have stalled, or legal enquiries may be taking longer than expected. Your solicitor and agent can help you understand the cause of the delay and what is needed to move the sale forward.

If the sale is unlikely to complete in time, discuss the position with your lender as early as possible. Depending on the circumstances, you may need to consider an extension, alternative funding, or a revised sale strategy.

You should also check whether the anticipated sale proceeds will be sufficient to repay the loan and associated costs.

What happens if a bridging loan goes into default?

If the loan is not repaid when required, the consequences will depend on the facility agreement and the circumstances. Default may also arise for reasons other than failure to repay on the final date.

Depending on the terms, the lender may be entitled to charge default interest or other fees, demand repayment, or take steps to enforce its security. These costs can increase the amount needed to redeem the loan.

You should not assume that missing the repayment date means the lender will immediately take possession or sell the property. You should also not ignore a default notice or assume no action will follow.

If you disagree with the amount claimed or the lender’s proposed action, ask for a breakdown of the balance and take advice on the loan documents and any notices received. Depending on the circumstances, there may be grounds to query charges or challenge enforcement. However, a challenge should not be assumed to stop interest accruing or prevent further action. The scope for challenge will depend on whether the borrowing is regulated or unregulated and the specific terms of the facility.

If you have received a notice from the lender, take legal advice promptly. Your solicitor can review the notice, the loan documents, and your options.

Can the lender repossess or sell the property?

A bridging lender usually holds security over the property, often as a legal charge. If the borrower defaults, the lender may have rights to enforce that security.

Depending on the circumstances, the lender may seek possession, appoint a receiver, or sell the property. The process differs depending on the nature of the security and whether the property is residential or commercial. Its options will depend on the loan and security documents, the type of property, and whether the conditions for enforcement have been met.

If the property is sold and the proceeds do not cover the debt and relevant costs, a shortfall may remain. Where a personal guarantee has been given, the guarantor may also face a claim, depending on its terms.

If the lender has indicated that it intends to enforce its security, obtain advice as soon as possible. There may still be scope to discuss a repayment proposal, but you should not assume enforcement will be paused while an alternative is explored.

What if you gave a personal guarantee?

If a limited company or SPV took out the loan, a lender may have required a director or another individual to provide a personal guarantee.

The guarantee is separate from the company’s obligation to repay. If the company defaults, the lender may be able to pursue the guarantor, subject to the wording of the guarantee and the circumstances.

Before agreeing to revised loan terms or signing a further guarantee, consider whether your personal exposure will change and whether separate legal advice is needed. A guarantor may remain liable even where the secured property has been sold and there remains a shortfall.

Advice on a delayed or failed bridging loan exit

Our real estate finance solicitors advise property investors, developers, and businesses on refinancing, bridging transactions, and the legal issues that can arise when a planned exit is delayed.

Dylan Leet, partner and head of real estate finance, says: 

“A delayed exit does not always mean there are no options, but borrowers need to be realistic about what can be achieved and how long it will take. Reviewing the loan documents and speaking to the lender early can give everyone a clearer basis for finding a way forward.”

Where a dispute arises with a lender, our real estate finance and litigation teams can work together to advise on the loan, the action being taken, and the options available.