Limited recourse borrowing arrangements. What they are and why we use them for SMSF property investment.
New to LRBA lending? If you’re looking for a basic understanding of LRBAs, you’ll find this page a good place to start. It explains what limited recourse borrowing arrangements are - and why SMSF’s use them to borrow for property investment.
What’s a Limited Recourse Borrowing Arrangement?
Put simply, a limited recourse borrowing arrangement (or LRBA) is a special type of loan given to an SMSF to buy an asset. LRBAs are non-recourse loans, which means the lender can’t access the fund’s other assets if it defaults on the loan.
This makes limited recourse borrowing different from other lending arrangements. Normally, when a borrower defaults on loan repayments, the lender often has access to a range of other assets as recourse. With LRBAs, if the fund defaults, the lender’s recourse is strictly limited to the property (or other asset) that the SMSF loan was used to purchase.
Why does my SMSF need an LRBA to borrow for property investment?
In Australia, Superannuation legislation governs how SMSFs are allowed to borrow money. The Superannuation Industry (Supervision) Act 1993 (SIS Act), states that trustees of SMSFs are prohibited from borrowing except when borrowing under a limited recourse borrowing arrangement (LRBA).
Did You Know? Before 2007, SMSFs could not borrow money to buy property at all. In 2007 the legislation was relaxed and SMSFs can now borrow money for property investment - provided certain conditions are met - including that any loan to an SMSF be written as a limited recourse borrowing arrangement. By limiting the lender’s recourse in this way, LRBAs’ provide important protection for your SMSF assets.
Why it’s important to seek specialist LRBA lending advice?
There’s a lot to consider when investing in property. With an SMSF and limited recourse borrowing added to the mix, the process can quickly become quite complex.
At SMSF Loan Experts we use our comprehensive understanding of the whole SMSF ecosystem - from SMSF setup to SMSF property investment - to provide outstanding limited recourse borrowing outcomes.