Loans of any sort are overwhelming, and SMSF loans are no different. Many small business owners with property turn to SMSF loans to help benefit their business and maximize their retirement. However, SMSF loans can be confusing to navigate through. Below are some common questions you may have about SMSF loans.
- What Exactly is an SMSF Loan?
A basic but necessary question to ask, an SMSF loan is also known as a self-managed superannuation fund. These are most often used by business owners to both manage and further increase their profit. However, it is not a loan exclusive to only business owners.
- What Type of Property Can My SMSF Loan Buy?
There are two types of SMSF loans—one is commercial, and one is residential. These parallel with the two different types of property you can purchase with your SMSF loan: either commercial or residential. Your investment strategy should reflect which property you’re investing in to ensure you do not run into any legality problems.
- Why is the Cost Higher for an SMSF Loan?
The main reason for the increase in fees in SMSF loans is typically tied to the lender. For the costly legislations, these loans require more capital than for other loans. The extra capital is passed onto the owner from the lender. SMSF loans are wonderful for retirement purposes, however, so the extra cost is beneficial for long-term results.
- What is the Difference Between a Home Loan and an SMSF Loan?
While these two loans are extremely similar, there is one large difference that certainly sets them apart. In order to purchase any sort of property with SMSF loans, you will first need an LRBA, or limited recourse borrowing arrangement. An LRBA is not needed for a home loan.
- What is a Limited Recourse Borrowing Arrangement?
An LRBA is a crucial part of purchasing a property if you have an SMSF loan. It is a type of structure that requires another individual to become a security trustee. This individual holds the assets until the loan is fully repaid. Once this happens, the ownership can be transferred over to the SMSF.
Reach out to an expert if you are considering an SMSF loan. These loans are a wonderful way to further invest in your business as well as your future.
