SMSF Commercial Property Loans: Buying Business Premises Through Super

Let me start with the bit that causes the most confusion. The rule change ended new SMSF borrowing against residential property. It did not end SMSF borrowing altogether. Business real property, meaning property used wholly and exclusively in a business, can still be bought inside a self-managed super fund with borrowed money. In practice that usually means the premises your own business operates from: a warehouse, a workshop, a consulting suite, a shopfront.

Why business premises is the standout use case

Superannuation rules generally stop a fund from buying assets from, or leasing assets to, people connected with the fund. Business real property is the notable exception. That is why this structure exists at all: your fund can own the building, and your own business can be the tenant, provided the lease is on genuine commercial arm's length terms at market rent.

The appeal is straightforward. The rent your business pays each month stops going to a landlord and starts going into your own retirement savings, while the fund holds an asset your business has every reason to look after. Whether that is actually the best use of your super is a separate question, and one for your adviser.

How the borrowing structure works

A super fund cannot simply take out a mortgage the way you would personally. Borrowing inside super is done through a limited recourse borrowing arrangement, usually shortened to LRBA. The property is held in a separate holding trust, often called a bare trust, with its own trustee, and the fund holds a beneficial interest in it. The lender's recourse is limited to that single asset, so if things go wrong they cannot come after the fund's other investments.

1. Your adviser and accountant confirm the strategy suits the fund, and the trust deed permits borrowing.
2. A holding trust and its trustee are established, correctly, before the contract is signed. Order matters here.
3. The fund provides the deposit and costs from its own money, and the lender funds the balance under the LRBA.
4. The property is bought in the name of the holding trustee, held for the fund.
5. Your business, or a third party, leases the premises at market rent under a proper written lease.
6. Once the loan is repaid, legal title can transfer to the fund.

What lenders look for

• A larger deposit than an equivalent loan outside super. SMSF lending is conservative by design.
• Liquidity left in the fund after settlement. Lenders and auditors both dislike a fund with an asset and no cash buffer.
• Enough income to service the loan, from rent plus ongoing contributions, tested with a decent buffer.
• A property that genuinely qualifies as business real property, and a written lease at market rent.
• Clean fund documentation: the trust deed, the investment strategy, recent financials and member balances.

The panel of lenders who write this kind of lending is short and it moves. That is most of the value I add here, because applying to a lender who has quietly stepped away from SMSF commercial wastes weeks and leaves a declined application on the record.

The costs and the constraints

Setting up an LRBA costs more than a standard purchase, because you are paying for the holding trust, additional legal work and lender documentation on top of the usual conveyancing, stamp duty and valuation. Ongoing, the fund carries audit and administration costs. Those are real numbers and they should be part of the decision rather than a surprise at settlement.

The constraints matter too. Contribution caps limit how quickly you can top the fund up if cash flow gets tight, and the rules around what you can do to a property held under an LRBA are restrictive. Repairs and maintenance are generally fine. Improvements that fundamentally change the asset are not, at least not with borrowed money. Ask your adviser before you plan a major redevelopment.

If you would rather buy commercial property outside super, or you are weighing the two up, start with how commercial loans differ from home loans and buying your business premises. You can also read more about how I handle SMSF commercial lending.