Getting any type of loan can be an overwhelming ordeal. There is a certain amount of liability in a loan and reading the websites can sometimes leave you more confused about the limitations of a loan than before you started researching!
An SMSF loan is commonly used by business owners to help better manage and increase funds, but it is not exclusive to only business owners. There are a few commonly asked questions that may help clear up any confusion.
- Is an SMSF Loan the Same as a Home Loan?
No, this is different from a home loan. To purchase property with SMSF loans, you will need an LRBA, or limited recourse borrowing arrangement. These are also slightly different from investment loans.
- What is a Limited Recourse Borrowing Arrangement?
A limited recourse borrowing arrangement, or LRBA, is necessary for you to purchase property when you have an SMSF loan. It is a loan structure that requires that an individual becomes a security trustee to hold the asset on the behalf of the SMSF.
This security trustee will hold onto the asset until the debt has been repaid. Once fully repaid, the ownership is then transferred to the SMSF. This is a crucial and necessary part of an SMSF loan.
- Why is an SMSF More Expensive?
An easy answer as to why they are more expensive is quite simply the legislation that goes behind these loans. Lenders are required to hold more capital than they need for other loans in comparison. Because the loans are more costly to the lender, the lender passes these costs on to the owner of the SMSF loan.
- What Type of Property Can My SMSF Loan Buy?
With an SMSF loan, you can purchase commercial or residential property. Be sure that your investment strategy shows that you are investing in property and be sure to check and update this investment strategy often to avoid any liabilities or legality issues.
An SMSF loan is a great way to further invest in your small business. It can help boost your retirement savings and make you money on your property in the long run. If you are considering an SMSF loan for your small business, make an appointment with a specialist. SMSF loans can open a lot of doors and put you on the right financial track.