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Commercial Property SMSF LRBA Loans (A Private Lending SMSF Refinance Case Study)

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Commercial Property SMSF LRBA Loans (A Private Lending SMSF Refinance Case Study)

We are one of the very few players in the market that offers SMSF LRBA loans, and this is in part due to our investment in experts that understand the SIS ACT (Superannuation Industry Supervision Act). SMSF LRBA loans are one of the best ways to get funding for your SMSF, to grow your wealth and take advantage of the tax benefits.

SMSF LRBA loans are also used by business owners who wish to acquire a commercial property using their SMSF structure to take advantage of the tax income benefits from leases paid for the premises.

This division of assets within different structures also helps to protect the interests of business owners, in the event something should go wrong with the business. As points of recourse by other lenders is limited, as the commercial asset sits within their SMSF.

Very few banks now offer SMSF LRBA loans, and there are several reasons, largely to do with the legal compliance of the SIS Act and points of recourse available to the lender. Of the banks that do offer it, their LVRs are very conservative, they have strict minimum net asset positions for SMSFs and liquidity requirements. In addition to this, times to settle deals can take up to several months.

The second-tier market has a few players, but once again they are limited in certain respects due to conservative LVRs surrounding commercial property, that only slightly outdo the banks.

The key advantage for borrowers, is that the recourse a lender can take against the SMSF is limited only to the asset that the funds are being borrowed for. In other words, other assets within the SMSF structure can not be touched.

Where we stand our own is our higher LVRs on commercial property assets, competitive if not lower rates than second tiers and our ability to settle deals in timely fashion (within 10 business days). This is especially useful for clients that require a quick settlement for acquisition.

The situation

A client required an urgent refinance solution for a commercial property within their SMSF. The LVR of the loan was 70%, which is above what banks or a second-tier lender could comfortably provide at a lower rate. The client also did not meet the bank SMSF minimum net asset requirements.

Time: We were required to refinance the deal within 2 weeks.

Calculations: The loan was around 70% of the commercial properties value, with the principal amount being $400k. The client was rate sensitive and wished to have a competitive rate.

Solution: We were able to provide a refinance solution within 10 business days, at a very competitive rate that was below a second-tier lender for the LVR at hand.

Key features of the loan: A loan term of interest only for 12 months, with an option to extend up to 36 months. The borrower could also make principal reductions at their discretion.

The Result

The client was able to refinance the commercial property within the SMSF without being hit with penalty rates. The rate provided to the client was also lower than their existing lender.

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