Important
General information only. Lending within a self-managed super fund involves superannuation, taxation and legal considerations. Mel Best is a finance broker and does not provide superannuation, taxation, legal or investment advice. Trustees should obtain independent advice from an appropriately qualified professional before proceeding.
Limited recourse borrowing arrangements for commercial property
An LRBA allows a self-managed super fund to borrow to acquire a single acquirable asset, held in a bare trust, with the lender's recourse limited to that asset. If the arrangement fails, the lender's claim is confined to the asset itself rather than the fund's other holdings.
Commercial assets fit this structure in principle: a premises is a single, identifiable asset, and the rent contributes to the repayments. The work lies in establishing and documenting the structure correctly before an application is lodged, so the borrowing can withstand review and remain workable over its term.
- Bare trust and custodian documentation
- Single acquirable asset requirements
- Repayment from fund contributions and rental income
- Structuring the borrowing to permit a future refinance
Commercial property purchases through an SMSF
Office, retail, industrial, medical and mixed-use assets are considered by SMSF lenders, subject to their individual policy. The assessment concentrates on the income stream, the lease profile and the tenant covenant — the criteria any commercial credit team applies — alongside the fund's own position as borrower.
Mel prepares the file so that both sides are addressed: the property as security and the fund as borrower. Independent legal, taxation and financial advice on the acquisition, the bare trust and the fund's investment strategy sits alongside the finance process, and the lending is structured to follow that advice.
- Office, retail, industrial and mixed-use acquisitions
- Tenanted investments and business premises occupied by the members
- Independent valuation and market rent evidence
- Loan term and interest-only period aligned to the lease
Business real property acquired by a fund
Business real property is generally land and buildings used wholly and exclusively in the conduct of a business. It is the category most often associated with commercial acquisitions inside a fund, including premises occupied by the members' own trading entity.
Whether a particular title, and the way it is used, meets that description is a question of fact and of superannuation law. Trustees should confirm the position with their accountant or legal adviser before committing to a purchase, because the answer determines what the fund may acquire and how the arrangement must be documented.
- Whole-of-title premises used in a business
- Partly used and mixed-use titles, which require careful review before proceeding
- Acquisitions from a related party, subject to the applicable superannuation rules
- Valuation and independent advice on market value
Commercial premises leased to a related business
A common structure is for the fund to own the premises and lease them to the members' trading entity. It can work well, but the relationship between landlord and tenant is examined closely, and the terms need to be commercial in substance as well as on paper.
The lease, the rent and the conduct of both parties should be able to withstand scrutiny. Non-arm's length arrangements can affect the fund's taxation position and its compliance standing, so the terms should be settled with your accountant and lawyer before the lease is signed.
- A written lease on arm's-length terms
- Independent evidence of market rent at the outset and on each review
- Rent reviewed and paid in accordance with the lease
- Advice on related-party and non-arm's length income rules before signing
Liquidity, servicing, security and lender eligibility
SMSF lending attracts a narrower group of lenders, and each applies its own conditions. The requirements below appear consistently across the market, and any one of them can determine whether an application proceeds.
Fund liquidity
Most lenders require the deposit and acquisition costs to be met from fund cash, and many want to see a buffer remaining after settlement for expenses, repairs and vacancies. A fund fully committed at settlement is generally not acceptable.
Servicing and contributions
Servicing is assessed on the fund's actual capacity: employer and personal contributions, net rental income and existing liquidity. Contributions must be genuinely available and sustainable across the term, not merely intended.
Security and loan-to-value
Commercial securities are assessed on asset type, location, lease profile and tenant covenant, and loan-to-value limits for SMSF lending are generally more conservative than for personal lending. Specialised or short-leased assets may sit outside a lender's policy altogether.
Lender eligibility and documentation
The trust deed must permit borrowing and the proposed acquisition, the fund must be able to evidence its complying status, and a correctly executed bare trust with the appropriate trustee is a condition precedent for most lenders. Errors here delay settlement or stop it altogether.
Refinancing an existing SMSF limited recourse borrowing arrangement
Refinancing an LRBA can improve pricing, extend an interest-only period or reset the term as the lease and the fund's circumstances change. It must be structured carefully to preserve the single acquirable asset position and avoid unintended consequences.
Where the original arrangement was documented differently, a replacement bare trust may be required. The existing facility's break costs and the fund's current position should be established before an application is lodged, with your accountant and legal adviser confirming the structure.
- Repricing and refinancing an existing SMSF facility
- Restructuring the term and repayment profile
- Reviewing bare trust and custodian arrangements
- Coordinating the refinance with your accountant and legal adviser
Planning considerations before you commit
- Whether the asset is permitted under the fund's investment strategy
- The effect of gearing on fund diversification
- Contribution capacity across the full loan term
- Exit planning if members retire or circumstances change
- The cost of the structure, including legal, accounting and valuation fees
Insight
Most SMSF finance delays come from documentation, not servicing. The bare trust, the trust deed and the investment strategy need to line up before the lender's credit team will look at the application.