The SMSF lending guide.

A Limited Recourse Borrowing Arrangement is the structure the ATO requires for an SMSF to borrow money to acquire an asset. The SMSF doesn't hold the asset directly during the loan — a separate bare trust holds legal title, and the SMSF holds the beneficial interest. The loan is limited recourse, meaning the lender can only claim against the specific asset in the bare trust, not other SMSF assets.

The setup sequence matters: the bare trust must exist before contracts are signed. Get this wrong and you may not be able to complete the transaction correctly, which can result in compliance issues the ATO will notice.

SMSF residential lending is straightforward but limited — you can't buy residential property from a related party, can't live in it, and the lender panel is small. SMSF commercial lending is more flexible. The 'business real property' exception lets the SMSF buy commercial property from a related party (including the members' own business) and lease it back on commercial terms. This is the structure most commonly used to get a business's trading premises into an SMSF over a 20-year horizon.

A handful of years ago most major banks withdrew from SMSF lending. The current panel is dominated by second-tier banks, credit unions and non-bank specialists. LVRs are 65-80% depending on asset type, liquidity requirements apply, and rates are slightly above equivalent non-SMSF loans. Panel depth and understanding lender-by-lender policy quirks is where broker value sits.