Port Finance has dealt with and continues to deal with SMSF lending, but at the same time we want to stress the importance of knowing almost everything there is to know about this type of lending. Understanding the ins and outs of it will help you decide if it is the right choice of lending for you.
BENEFITS OF SMSF LENDING
- The members of SMSF will pay 15% tax on their taxable income as opposed to the regular 46.5% when they are investing using their own name.
- Since SMSF’s will pay just 15% of tax, any of the loss caused by negative gearing will only yield a 15% tax benefit, which makes it a great option if the property is geared positively.
- If there is litigation or bankruptcy, your SMSF investment is protected even if you decide to withdraw some for your expenses.
- You give less tax on your rental income.
- The capital repayments on your loans can easily sped up simply by increasing the contributions being put into your fund.
- SMSF trustees need to be permitted to borrow under a SMSF Trust Deed
- The title is held by a separate company entity on behalf of the SMSF
- A trust arrangement deed is needed
- The vendor should be totally unrelated if there is residential property being purchased
- The SMSF has a beneficial right to a property by simply making one or more than one payments
- The loan needs to be serviced by the SMSF from its own sources of income
- The max LVR is 80% for residential properties and a bit lower for most commercial properties
- There is a 30 year max loan term and 15 years for just commercial property
- Property is purchased only for investment
- Personal loans cannot be given to fund members or family members
- Residential property cannot be purchased from any fund member
- A relative or a member cannot live in the property you have purchased using the fund
- There is no property or construction development
- No vacant land purchase
- No way to have a company title ownership
- No redraws, interest, top ups and capitalisation is allowed according to the SIS ACT
- An application fee
- Some legal fee for the perusal of the Super Fund Trust Deed
- Some legal fee for the perusal of Security Trust Deed. This is prepared by a solicitor
- Fee required for the preparation of documents
- You get either standard variable or fixed rates
- There may be an interest only period to begin with
- Now redraw
- No funding of the loan interest / capitalisation
- No security swaps
- Account combination not allowed
- No increase in limit
SERVICING OF THE LOAN
- It requires a minimum of just 2 years tax returns and the financials for a SMSF
- There are contributions from the members through their employer or by the individual
- There is a proposed rental income that comes from the investment purchase
- Other incomes from various other investments are also held in the SMSF account
THE MINIMUM DOCUMENTATION NEEDED
- The application for a business lending needs to be in the name of an SMSF
- There should be guarantor particulars completed by all the directors / members
- 2 full years of tax returns and the financials from an SMSF
- A trust deed
- A security deed
- A contract of the sale
- Solid evidence of rental income for the purchases