By now you have probably heard about self-managed superannuation funds and their attractive benefits that employed people can make use of and increase their pension after they retire. Simple in organization, SMSFs are very easy to set up as you only need several members and their mutual agreement on who will be the trustee of the fund. However, their seriousness shouldn’t be underrated as constructing an investment strategy for a super fund is not that easy. It does require special entrepreneur skills to determine where should money be invested in order to receive high returns. One of the benefits that these funds hold is the option to borrow SMSF loans for further investment under special tax and interest rates. However there are certain SMSF borrowing rules and conditions that need to be met.
We need to indicate that these SMSF loan conditions are made from government facilities and thus are exposed to further changes. That is why the trustee should always be aware of any new changes in SMSF borrowing regulations. For instance, recent updates involving SMSF loans state that one super fund can only borrow a loan limited times per year. Here are the official conditions and regulations for borrowing a loan through SMSFs :
- Money borrowed needs to be invested in one single asset or a sum of identical assets (like some residential property of several square meters) or legally known as acquirable asset.
- A separate trust must be made for this acquired asset.
- If fund members along with their trustee want to have full ownership of this asset, the loan must be repaid.
- The asset cannot be taken as a back up plan for other loans that the fund have obtained
- The lender has some limitations concerning his legal rights under the loan agreement and in most cases those rights are limited to the acquired asset.
Beside these conditions, there are some evaluation methods that are used to determine whether a certain SMSF fund has potential of returning the loan on time. Moreover, credit history data is also an important indicator of how well is the fund managing its funds and investments.
Even if SMSF loan can be obtained, trustees need to carefully manage those given resources if they want to avoid canceling of the loan. Moreover, SMSF loans have simple borrowing rules that allow funds to eliminate their liability just by returning the acquired asset. In conclusion, it is not very demanding to get a loan, as it is to invest it the right way for higher pensions of fund members.