Commercial Lending Exit Strategy: A Guide for Bankers

When a client no longer qualifies under your bank’s lending guidelines, whether due to increased working capital requirements, covenant violations, or shifting credit risk profiles, it’s time to implement a strategic borrower exit plan. Most commercial banks give clients 60 to 90 days to find new financing. But what happens when that deadline comes and goes, and the client hasn’t budged?

A delayed borrower exit increases credit risk and limits capital flexibility, which is something no commercial lender can afford. Here’s how commercial bankers can keep things moving with minimal friction and maximum clarity:

Communicate a Timeline and Consequences Early

From the very first conversation, set a clear exit deadline, then define what happens if it’s not met. Be upfront about the bank’s position: if the client doesn’t secure new financing within that timeframe, consequences may include:

• Reduced loan advance rates.
• Increased pricing or exit fees.
• Enhanced loan monitoring and reporting.
• Suspension or termination of the credit facility.

This isn’t about being punitive; it’s about proactive risk management and setting expectations.

Stay Involved Throughout the Commercial Loan Exit Process

Silence from a client during the exit window is a red flag. Regular check-ins show you’re engaged and watching the clock. Ask direct questions:

• Who have you approached for alternative lending solutions?
• Do you have any signed term sheets?
• Where are you in credit underwriting or due diligence?
• What’s currently delaying the process?

Active communication discourages delays and helps you assess whether progress is real or if the client is stalling.

How to Handle Borrower Exit Delays Strategically

Sometimes, clients do need a little more time. If you choose to extend the exit deadline, make sure it’s tied to clear, measurable milestones:

• 30-day extension if they’re in due diligence.
• 45-day extension if they’re reviewing lender proposals or term sheets.
• 15–20 day extension if final documents are in progress.

Avoid open-ended extensions. Without limits, clients may continue shopping for better rates or worse, delay the process altogether.

Apply Consistent, Constructive Pressure

Clients may hesitate to move quickly, especially if they think another lender might offer a better rate or looser terms. While that’s understandable, it’s not your responsibility to wait indefinitely.

Let them know:

• Your current credit facility is no longer a long-term solution.
• Delays increase risk for both parties and limit your bank’s ability to reallocate capital.

The sooner the transition is complete, the better the outcome for the client, your portfolio, and your institution.

Why a Clean Borrower Exit Is Critical for Risk Management

Managing a client transition out of your portfolio isn’t easy, but it doesn’t have to be messy. By setting clear expectations, maintaining open communication, and drawing firm boundaries, you can facilitate a smooth exit that protects your bank while giving your client the space to operate with a more appropriate lender.

About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power, and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset-based financing solutions from $500,000 to $8 million with no financial covenants.

As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.

If you know of, or are, a business in need of non-traditional financing, contact Mark Hafner at 800.742.0733 or mhafner@celticcapital.com, or visit us at celticcapital.com.