For many business owners the idea of buying their own premises inside an SMSF is highly attractive. SMSF property lending allows you to use your superannuation savings to secure business premises, turning rent into retirement wealth.
But it’s important to understand this isn’t like taking out a home loan or even a standard commercial loan.
SMSF property lending is different – stricter rules, fewer lenders and compliance requirements mean you need to approach it carefully. This blog will explain how SMSF lending works, why it’s unique and why working with professionals who understand SMSF property investing is essential.
How SMSF Property Lending Works
When an SMSF borrows to buy property, the loan must be structured as a Limited Recourse Borrowing Arrangement (LRBA). This is a unique feature of SMSF property lending. It means the loan is secured only against the property being purchased – the lender cannot access other SMSF assets if the loan defaults.
Key facts for business owners:
Borrowing LVR’s are much the same as outside the SMSF environment. We usually see a range of 70% to 80% for commercial property, with occasional outliers up to 90% with the right circumstances.
Serviceability rules. Lenders assess the SMSF itself – contributions, rental income and expenses – rather than your personal cash flow. The fund must demonstrate it can service the loan on its own.
There are SMSF structure requirements (such as having a custodial trustee to hold the property on bare trust for the SMSF) and certain provisions in the trust deed of the SMSF that need to be met for lenders to proceed, however these requirements are normally met and don’t normally pose any hurdles.
Loan terms are less flexible. SMSF commercial property loans often have shorter terms and higher rates compared with traditional lending. Under the limited recourse borrowing arrangement rules, you also can’t redraw your loan like you can outside the SMSF environment.
Learn more about setting up an SMSF with our expert accountants
The SMSF Commercial Property Loan Market is Limited
One of the most important considerations for business owners is that not all banks or lenders offer SMSF commercial property loans. The pool of lenders is smaller, approval processes can be more demanding and lending policies vary significantly. This makes choosing the right lender critical.
Some lenders may accept a wide range of commercial properties while others restrict lending to certain asset classes. Loan-to-value ratios, interest rates and serviceability assessments also differ from one lender to the next.
Approaching SMSF property lending as though it were a standard home loan is a mistake. Business owners must work with specialists who understand the nuances of this market.
Borrowing through your SMSF isn’t like a regular property loan – it must comply with superannuation rules and unique SMSF lending policies. To get it right, you’ll need accounting and finance expertise.
Read more on why Expert Guidance Matters here. Still got questions?
Our highly experienced and local SMSF team can walk you through the process and help you understand
whether a SMSF loan for property is a viable option for you.
Book a Free SMSF Strategy Session with Rogerson Kenny’s SMSF specialists today.
Or call us on (03) 9802 2533 to talk through your options.
*Disclaimer: This article is general information only and does not take into account your personal circumstances. Always seek professional advice before making financial decisions.*
