A Beginner’s Guide to SMSF Loans

SMSF loans, or self-managed superannuation funds, have become a popular fund of choice in the last ten years for business investors interested in running a smaller business. While originally thought of as something attainable only to the very wealthy, the demand for SMSF funds has increased dramatically in Australia due to the introduction of the “Limited Recourse Borrowing Arrangements” or LRBA, which allows you to borrow to buy real estate.

What Exactly is an SMSF Loan?

An SMSF loan essentially is a type of trust that can include up to four members. These members are individual or corporate trustees. As SMSF loans are managed by the Australian Taxation Office, there are many intricacies involved so it is best to include a professional that has dealt with an SMSF loan before and knows how to help you process all steps correctly. SMSF loans are run usually with the purpose of retirement benefits and tax benefits.

SMSF loans are typically broken into two different types:

  • An SMSF commercial loan
  • An SMSF residential loan

Commercial and residential loans are exactly as they sound—one is for property ownership for small businesses, and one is typically for residential properties like houses or apartments. Commercial loans do tend to be more popular and indeed desirable for Australians.

SMSF Loans Vs. Standard Investment Loans

An SMSF loan can vary from different types of loans. For residential property SMSF loans, you can borrow to invest in your property by up to 80% of the value of the said property. For commercial property SMSF loans, you can borrow up to 70% of the value of the said property. These differ from standard investment loans so if you are interested in an SMSF loan, be sure to find the correct specialist to help you set up your fund.

Is it Costly to Set Up an SMSF?

SMSF loans don’t require a minimum balance to get started, but the Australian Securities and Investments Commission does have a minimum balance of $200,000 to make the fund viable. To properly set up an SMSF, establishment costs will likely be under $1000.

If you run a small business or want to become the landlord of the property for your business, then an SMSF loan might be a great way to further boost your funds and help your small business flourish. Set up an appointment with an SMSF specialist to ensure you are taking all of the correct and necessary steps.

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