Why is your business paying rent?

Published by MFAA

If your business is paying rent while your super sits around getting fat, it’s time to consider putting your super to work.

Is your business paying rent to an investor for its premises? Using your self-managed super fund (SMSF) to purchase business premises means that your business would pay rent, at market rates, into your SMSF instead. Not only would you put your super to work, you could purchase business premises even if your regular savings and income are not up to the task.

“An SMSF investment vehicle can utilise savings and SMSF income streams to service the borrowings, while establishing a specific funding structure for the purchase of the asset,” explains an MFAA accredited finance broker.

However, it’s not all rainbows and lollipops – there are very strict guidelines to be followed when it comes to SMSF lending.

Firstly, borrowing or gearing within your SMSF to purchase property must be done on a lending agreement called a Limited Recourse Borrowing Arrangement (LRBA), and you may need to have established a trust into which the lender can release the loan.

There are also some procedural hurdles, one of which is that before applying for the loan, you will need to have identified the property you wish to purchase. This may be complicated by the extra time it can take to establish an SMSF loan – especially if you are planning to roll over any existing super into a new SMSF – so it’s best to establish a settlement period that is as long as possible.

An MFAA accredited finance broker who specialises in SMSF lending will be able to help you navigate these requirements while still keeping in mind your overall investment strategy and desired outcomes.