Most lenders offering SMSF loans will lend up to 70 percent of the property's value for commercial property, which means you'll need a 30 percent deposit from your fund plus settlement costs.
That loan-to-value ratio is lower than standard residential lending because the loan is made under a Limited Recourse Borrowing Arrangement, where the lender's recovery rights are limited to the single asset held in the holding trust. The lender cannot pursue other fund assets or trustee personal assets if the loan defaults, so they require a larger equity buffer. The actual LVR available depends on the lender, the property type, the fund's rental income capacity, and whether the property is leased to a related party.
Why Commercial SMSF Loans Have Lower LVRs Than Standard Property Loans
Lenders treat SMSF loans differently because of the way the asset is held and the restrictions on recourse. Under a Limited Recourse Borrowing Arrangement, the property is held in a bare trust with the SMSF as beneficiary. If the loan defaults, the lender can only recover against that single asset, not against other fund holdings or the personal assets of the trustees. That additional risk is priced into both the interest rate and the maximum LVR.
Some lenders will stretch to 80 percent LVR for high-quality commercial property with a strong lease in place, but 70 percent is the standard ceiling across most panels. The type of commercial property also matters. A retail shopfront leased to a national tenant in a high-traffic precinct will typically attract a higher LVR than a specialty-use property with limited alternative tenants.
How Lenders Assess Borrowing Capacity for SMSF Commercial Loans
Borrowing capacity is determined by the fund's ability to service the loan from rental income, not the personal income of the members. Lenders assess the net rental income after outgoings such as rates, insurance, and management fees, then apply a serviceability buffer to ensure the fund can meet repayments if interest rates rise or if there is a vacancy period.
Consider a fund purchasing a small commercial unit in the Coronet Bay and San Remo area leased to a local business. The property generates rental income, and the lender will apply a vacancy factor and a serviceability buffer to that income when calculating how much the fund can borrow. If the property is leased to a related party, the lease must be documented at arm's length and at market rent, and some lenders will apply stricter serviceability criteria or decline the application entirely.
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Deposit Requirements and Fund Liquidity
A 30 percent deposit on a commercial property means the fund needs substantial liquidity before the purchase can proceed. Settlement costs including stamp duty, legal fees, and loan establishment costs are additional and cannot be borrowed under the LRBA. These costs typically add another 5 to 7 percent to the upfront requirement.
If the fund does not have sufficient cash, members may be able to make voluntary contributions to build the balance, subject to contribution caps. The concessional contributions cap is $32,500 per annum, and the non-concessional cap is $130,000 per annum, with bring-forward provisions available for eligible members. The fund cannot borrow to cover settlement costs, and borrowed funds cannot be used to improve the property after purchase.
What Happens When a Property Is Leased to a Related Party
When an SMSF purchases commercial property and leases it to a business controlled by a fund member, the property must qualify as business real property under section 66 of the SIS Act. The lease must be at arm's length and at market rent. Some lenders will not lend where a related party lease is involved, and others will apply a lower LVR or higher interest rate to reflect the additional compliance risk.
In our experience, related party leases are common in regional and coastal areas where members operate small businesses and want to secure their commercial premises through their super fund. The arrangement can be compliant and commercially sound, but it requires careful documentation and independent valuation to satisfy both the lender and the ATO.
LVR Differences Between Residential and Commercial SMSF Lending Before August 2026
Before the changes that commenced on 10 August 2026, SMSF loans could be used to purchase residential investment property under a Limited Recourse Borrowing Arrangement. Residential SMSF loans typically offered LVRs up to 80 percent, slightly higher than commercial, because residential property was seen as more liquid and easier to sell in the event of default.
From 10 August 2026, new LRBAs for real property can only be used to acquire business real property. Existing residential LRBAs entered into before that date are not affected and can be refinanced without being subject to the new rules. The restriction does not prevent SMSFs from owning residential property outright without borrowing, but it does remove the option to use gearing for new residential purchases.
How Refinancing an Existing SMSF Loan Affects Your LVR
If your fund has an existing SMSF loan in place before 10 August 2026, you can refinance that loan to another lender without the refinanced arrangement being subject to the post-commencement rules. The ATO considers refinancing to mean entering into a new loan contract for the same asset, with the same or a new lender, and the limited recourse character of the arrangement must be maintained.
Refinancing may allow you to access a lower interest rate or release equity if the property has increased in value and the fund's balance supports a higher loan amount within the lender's LVR limits. However, any new borrowing to acquire a different asset, or any arrangement that changes the ultimate beneficiaries or the asset being acquired, would be treated as a new LRBA and subject to current rules.
What to Prepare Before Applying for an SMSF Commercial Loan
Lenders require detailed documentation for SMSF loan applications, including the fund's trust deed, recent financial statements, member statements, and a copy of the SMSF compliance certificate from the fund's auditor. If the property is already leased, you'll need a copy of the lease agreement and evidence of rental income. If the property is vacant, the lender will assess the fund's capacity to service the loan during a vacancy period.
You'll also need a contract of sale, an independent valuation, and confirmation that the property qualifies as business real property if you're relying on that exception. The holding trust deed must be prepared before settlement, and the SMSF trustee must hold a beneficial interest in the property with the right to acquire legal ownership once the loan is repaid. Working with an SMSF mortgage broker who understands the lending panel and the compliance requirements can reduce the time and cost involved in structuring the arrangement correctly.
If you're weighing up whether your fund has the deposit and serviceability to proceed, or if you're refinancing an existing arrangement, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is the maximum LVR available on an SMSF commercial property loan?
Most lenders will lend up to 70 percent of the property's value for commercial property held under a Limited Recourse Borrowing Arrangement, which means you need a 30 percent deposit. Some lenders may offer up to 80 percent LVR for high-quality commercial property with a strong lease, but this is less common.
Can I borrow money through my SMSF to buy residential property?
New Limited Recourse Borrowing Arrangements entered into from 10 August 2026 can only be used to acquire business real property. Existing residential LRBAs entered into before that date are not affected and can be refinanced without restriction.
How do lenders assess borrowing capacity for an SMSF loan?
Lenders assess the fund's ability to service the loan from rental income, not the personal income of members. They apply a vacancy factor and serviceability buffer to the net rental income after outgoings such as rates, insurance, and management fees.
Can my SMSF borrow to cover stamp duty and settlement costs?
No. Borrowed funds under a Limited Recourse Borrowing Arrangement can only be used to acquire the asset itself and loan establishment costs. Stamp duty and other settlement costs must be paid from the fund's existing cash reserves.
What happens if the property is leased to my own business?
The property must qualify as business real property and the lease must be documented at arm's length and at market rent. Some lenders will not lend where a related party lease is involved, and others may apply a lower LVR or stricter serviceability criteria.
