SMSF commercial property loans: buying business premises through super

How does an SMSF buy commercial property with a loan?

A self-managed super fund can borrow to acquire property, but only through a tightly defined structure called a limited recourse borrowing arrangement, or LRBA. In plain terms, the property is held on behalf of the fund by a separate trustee, often called a bare trust or holding trust. The lender lends to the fund trustee, and if things go wrong its rights are limited to that one asset rather than the fund’s other investments. The ATO sets out the rules for entering an LRBA on its website.

Commercial property is popular for SMSFs because the rent paid by tenants goes into the fund, and because, as we explain below, business owners can often hold their own premises in super.

Why do business owners use super for commercial premises?

The key concept is business real property. This is real property used wholly and exclusively in one or more businesses. Super law generally lets an SMSF acquire business real property from a related party, such as a member’s own business, which is an exception to the usual ban on buying assets from related parties. The purchase must be at market value, and the property must meet the business-use test.

Typical arrangements look like this: the fund buys a warehouse or shopfront, the member’s business leases it on commercial terms and the rent flows into the fund. The business gets its premises, and the fund gets an income-producing asset. There are strict requirements around rent, documentation and ongoing compliance, which is why specialist advice is essential.

What rules shape an SMSF property loan?

Rule or concept	In plain English
Sole purpose test	The fund must be run to provide retirement benefits to members, not to give members an upfront benefit
Investment strategy	The fund needs a documented strategy that covers the investment and borrowing
Trust deed	The deed must permit borrowing
Single acquirable asset	One loan relates to one asset or a set of identical assets with the same market value
Limited recourse	The lender’s claim is confined to the asset held in the holding trust
Repairs versus improvements	Borrowed funds can generally fund repairs and maintenance, but improvements that change the asset’s character are restricted
Arm’s length dealings	Leases and transactions with related parties must be at market terms

These points summarise the ATO’s guidance for general reading. They are not advice for your fund. Your accountant, SMSF specialist and solicitor should confirm how they apply to your circumstances.

What do lenders look at?

SMSF lenders are a smaller group than standard commercial lenders, and their policies differ. They typically look at the fund’s liquidity after settlement, the fund’s contribution levels, the property type and location, the lease and tenant, and the members’ backgrounds. Many look for a deposit and some cash reserve to remain in the fund. They also check that the structure documents are correct before settlement, because errors in the holding trust or contract can cause expensive problems.

Some lenders are cautious with specialist property types, vacant buildings or non-standard titles. Others will consider them with additional conditions. Matching the asset to the lender is where an experienced broker adds value.

How does Ownright approach SMSF commercial loans?

We are a broker, not your SMSF adviser, accountant or lawyer, and we will say so plainly. What we do is bring the finance side together so your professional team has everything it needs. Trevor Scott has spent over 40 years in finance, and our team works with trustees, advisers and solicitors so that lender requirements, the contract and the structure line up before you commit.

We look for lenders who suit the property and the fund, explain what documents they will want, and manage the process through valuation and settlement. If a lender declines, we ask why and see whether a different lender or a different structure helps. Ready to explore it? Start with a conversation here.

Does this work for residential property as well?

SMSF borrowing is available for residential investment property too, with different lenders and rules. Our SMSF property loans page covers that. Note that a fund generally cannot buy residential property from a related party, and cannot live in or rent residential property to members or their relatives. Business real property is the notable exception for commercial buying.

An illustrative example

Illustrative only, no real client. Two members of a small family business hold their SMSF in cash. Their workshop is leased from an unrelated landlord. After taking advice, the fund buys a comparable workshop in the area, held in a holding trust, and the business leases it from the fund at a market rent. The fund uses some of its cash for the deposit and borrows the rest, with the lender requiring member guarantees. Throughout, the accountant and solicitor confirm each step. We handle the lender side.

Mistakes to avoid

• Signing a contract before the fund and holding trust are ready.
• Using a trust deed that does not permit borrowing.
• Buying multiple titles under one loan without checking the single acquirable asset rule.
• Setting a rent that is not at market value.
• Planning improvements funded by borrowing without advice.
• Leaving too little cash in the fund after settlement.

Documents to have ready

• Fund trust deed and investment strategy
• Latest fund financials and member statements
• Contract of sale and property details
• Lease or proposed lease for the property
• Details of the holding trust and corporate trustee
• Identification and personal financial information for guarantors, if required

How much cash does the fund need to keep?

Lenders usually want to see that the fund will retain some liquidity after settlement. A fund that uses every cent for the deposit and costs may struggle to pay ongoing expenses such as insurance, rates, repairs and loan repayments, and may have trouble meeting its obligations if a tenant leaves. Having a buffer is part of prudent fund management as well as a lender requirement. Your SMSF adviser can help set an appropriate level for your fund.

What happens if the tenant leaves?

If the fund’s property is leased to a member’s business and the business leaves or fails, the fund loses its rental income but still has loan repayments. This is a real risk with related-party leases, and it is worth planning for. Lenders think about it too. They may ask about the strength of the business, the lease terms and the fund’s other income. A diversified fund is in a better position than one that depends entirely on a single tenant.

How do contributions fit in?

Members’ contributions to the fund help it service the loan, and lenders often look at the pattern and reliability of contributions. Contribution caps and rules are set by the ATO, and your adviser can explain how they apply. A lender will consider whether the fund’s income, including rent and contributions, can reasonably cover repayments and costs.

Next steps

If you are exploring super as a way to hold commercial property, tell us about the property and the fund and we will work through the lender options with your professional team. Our guide on how commercial property loans work is a useful companion, and the owner-occupier commercial loans page covers the non-super path.