How to Get a Loan with an SMSF: A Comprehensive Guide

A Self-Managed Super Fund (SMSF) offers Australians a way to take control of their retirement savings by managing their own superannuation investments. One popular strategy is using an SMSF to borrow money for property investments through a Limited Recourse Borrowing Arrangement (LRBA). In this guide, we will walk you through the key steps to successfully securing an SMSF loan.

Planning for the future: Using an SMSF loan to invest in property and build long-term retirement wealth.

Understanding SMSF Loans and LRBAs

An SMSF loan allows your fund to borrow money to purchase a residential or commercial property. However, it must comply with strict rules:

• The loan must be a Limited Recourse Borrowing Arrangement (LRBA) — meaning if the loan defaults, the lender’s rights are limited to the property only, not the other SMSF assets.

• The property must meet the sole purpose test — it must solely benefit the members' retirement savings.

• Members and related parties cannot live in or rent a residential property owned by their SMSF.

• Renovations are restricted — the property can be maintained or repaired but not fundamentally changed.

Set Up Your SMSF Correctly

Before applying for a loan, your SMSF must be fully set up and compliant:

• Create a trust deed that allows borrowing.

• Have a separate bank account for the SMSF.

• Ensure your investment strategy allows for geared property investments.

• Appoint trustees and register the SMSF with the ATO.

• Obtain a Tax File Number (TFN) and Australian Business Number (ABN).

Tip: Consult an SMSF specialist accountant or financial adviser to ensure everything is set up correctly.

Establish a Bare Trust (Custodian Trust)

A bare trust (sometimes called a holding trust) must be established to legally hold the property on behalf of the SMSF during the loan term.

• The SMSF is the beneficiary of the bare trust.

• The bare trustee is the legal owner on the title until the loan is repaid.

• This structure protects other SMSF assets from lender claims in case of loan default.

Important: The bare trust must be set up before signing the contract of sale.

Prepare Your SMSF Financial Documents

Lenders require detailed documentation to assess your SMSF loan application, including:

• Recent SMSF tax returns and audited financial statements (usually last 2 years).

• Evidence of SMSF contributions and/or rental income.

• Bank statements showing liquidity.

• A copy of your SMSF's Investment Strategy.

• A statement of assets and liabilities.

Note: Some lenders also want to see personal financial information from members and trustees, including tax returns and assets/liabilities, to assess servicing ability.

Meet the Lending Requirements

SMSF lending policies can be stricter compared to regular loans. Here's what lenders typically look for:

Requirement	Details
Minimum SMSF balance	Typically, $200,000+ (before or after purchase)
Loan-to-Value Ratio (LVR)	Max 70%-80% for residential; 65%-70% for commercial
Rental income	Strong rental yield to support repayments
Loan type	Principal and Interest (P&I) preferred; Interest-only sometimes available
Personal guarantees	Often required from trustees
Location and type of property	Prime locations and standard properties preferred (specialty properties may be harder to finance)

Choose the Right Lender

Not all banks and lenders offer SMSF loans. Options include:

• Major banks (some pulled out, but a few still offer products)

• Specialist SMSF lenders

• Mortgage brokers with SMSF expertise (highly recommended)

Tip: Compare interest rates, loan terms, fees, and flexibility across different lenders. Working with an SMSF loan broker can save a lot of time.

Apply for Pre-Approval

Before you commit to a property purchase:

• Apply for loan pre-approval.

• Ensure the lender is aware it’s for an SMSF LRBA structure.

• Pre-approval gives you confidence in knowing your borrowing capacity and conditions.

Find a Suitable Property

When searching for a property:

• Stick to standard residential or commercial properties.

• Avoid properties with high risks (e.g., serviced apartments, rural properties).

• Ensure the property will deliver good rental income and is aligned with your SMSF's investment strategy.

Remember: the property must not be used for personal or related party use if residential.

Make an Offer (Conditional on Finance)

Once you find a property:

• Sign the contract in the name of the bare trustee (not the SMSF itself!).

• Include a finance clause to protect yourself if the loan doesn’t get final approval.

• Proceed through the normal property due diligence: building inspection, valuation, legal review.

Finalise the Loan and Settlement

After your offer is accepted:

• Complete full loan application and submit required documentation.

• Satisfy any lender conditions.

• Arrange the settlement with your solicitor/conveyancer and the lender.

Post-settlement:

• The bare trustee holds the property.

• The SMSF collects rent and pays the mortgage and property expenses.

• Over time, the SMSF repays the loan and builds equity.

Manage Your SMSF Loan Responsibly

Ongoing obligations include:

• Keeping the SMSF compliant with superannuation laws.

• Making timely loan repayments.

• Maintaining records for audits and ATO reporting.

• Reviewing the SMSF's investment strategy regularly.

Tip: It’s smart to work closely with your accountant, financial adviser, and mortgage broker every year to stay compliant and optimize your SMSF performance.

Buying property with an SMSF loan can be a powerful wealth-building strategy, but it’s not for everyone. The rules are complex, and mistakes can lead to severe penalties or loan issues. That’s why working with professionals — an SMSF accountant, financial adviser, solicitor, and mortgage broker — is essential for a smooth, successful experience.

Need help with an SMSF loan? Reach out to an SMSF lending expert who can guide you through the process and help you achieve your retirement goals faster!