SMSF Loans and Personal Guarantees

[Terry_w]

St George was a lender that did not require personal guarantees from members for the SMSF loans if the SMSF could service on its own.

This has now changed with personal guarantees required from all members starting from today - no exceptions.

Does anyone else know of a SMSF lender who does not require a personal guarantee?

 

[perthguy]

I know that both Bank of Melbourne and Macquarie offer SMSF residential loans. There is nothing about personal guarantees on their web sites at this stage but its probably best you contact them directly to confirm:

http://www.macquarie.com.au/mgl/au/personal/home-loans/smsf

http://www.bankofmelbourne.com.au/personal/home-loans/our-home-loans/specialist/super-fund-loan

 

[Terry_w]

Both require personal guarantees.

 

[Rolf Latham]

Try Latrobe maybe

 

[Redwood]

Try Latrobe maybe

Latrobe has personal guarantees also (has since they introduced their product). The idea of 'non-recourse' is being skewed a little by our fantastic lenders.

Cheers, Ivan

 

[Paul@PFI]

The former STG position had been at odds with the parent Bank policy since day one. Westpac, Bank of Melbourne, STG etc all now have a consistent policy.

Their policy changed a while back. Previously many SMSF resi loans with 80% or lower LVR in major capitals was able to bypass the guarantee requirement.

A single member fund with an extra trustee director seems a real problem. Who in the right mind would be that additional Director and give a guarantee for an asset they cannot benefit from ??

Question for the brokers out there : Does the personal guarantee affect individual borrowing capacity or appear on a credit report ?? Its a floating charge of sorts and difficult to "value" the contingent liability so what effect is there ?? I would appreciate understanding this issue more.

 

[Terry_w]

I think SMSF loans are generally referred to now as "limited recourse loans" as they are not non recourse because there is a recourse - just not to the fund assets.

Giving a guarantee goes on your credit report and it does affect future borrowings outside the fund and must be declared in the application. The effect is the same as getting a loan directly.

As for personal trustees I think roughly 70% of SMSFs have a person as trustee rather than a company. Crazy.

I seen one for a guy I reviewed will for. Single member fund and he had his son as additional trustee to sign. Son is well off and owns substantial assets, but he just signs where dad tells him. 4 years ago I pointed out the danger for the son (to dad) but still nothing has been done I think. ******* still has not done his will - existing will is invalid and I told him this - and he is 74. No BDBN in place either and he has 3 children with a fund with abuot $2mil in assets! I told him what could happen.

 

[perthguy]

does resi require a personal guarantee?

http://www.resi.com.au/products/home-loans/smsf-loan

 

[perthguy]

Terry, you might have to explain this one from AMP SuperEdge:

A guarantee is always required from the Security Custodian Trustee. The Security Custodian Trustee must be a company. This guarantee is limited to the security property.
Where the SMSF Trustee is a company, all directors of the SMSF?s corporate trustee must also provide guarantees in their personal capacities.
Where the SMSF Trustee is/are individuals, no personal guarantees are required as the AMP Bank Loan Agreement binds them in their personal capacities too.

https://www.amp.com.au/wps/amp/au/F...?ids=d79b061e458ed310VgnVCM1000004320220aRCRD

 

[D.T.]

perthguy, you may as well do up a matrix of the lenders and their attributes/qualities

 

[Terry_w]

Terry, you might have to explain this one from AMP SuperEdge:


https://www.amp.com.au/wps/amp/au/F...?ids=d79b061e458ed310VgnVCM1000004320220aRCRD

This is pretty straight forward. Are you asking about the personal trustee bit? A trust doesn't exist as a legal person so it is the trustee entering the contract - i.e. the individual. A guarantee is a promise that you will pay or do something if another person doesn't. So it is impossible to guarantee your own loan similar to you cannot lend to yourself or otherwise contract with yourself.

So no guarantee is needed for a SMSF with a personal trustee as the trustee will be the borrower.

I should have specified Corporate trustee of a SMSF in my op - but there are probably people out there as individual trustees of a SMSF that are borrowing.

 

[perthguy]

This is pretty straight forward. Are you asking about the personal trustee bit? A trust doesn't exist as a legal person so it is the trustee entering the contract - i.e. the individual. A guarantee is a promise that you will pay or do something if another person doesn't. So it is impossible to guarantee your own loan similar to you cannot lend to yourself or otherwise contract with yourself.

So no guarantee is needed for a SMSF with a personal trustee as the trustee will be the borrower.

Yes, Terry, the part that says: "Where the SMSF Trustee is/are individuals, no personal guarantees are required as the AMP Bank Loan Agreement binds them in their personal capacities too."

The part "binds them in their personal capacities too" is new to me but your explanation is very. Thank you for taking the time to explain.

Did you track down any lenders that do not require a personal guarantee for corporate trustees?

 

[perthguy]

perthguy, you may as well do up a matrix of the lenders and their attributes/qualities

I would if I knew anything useful. When I first started planning this, there was no requirement for personal guarantee and getting a SMSF residential loan did not affect my borrowing capacity outside the super fund. Now that personal guarantees seem to be required, this will affect my borrowing capacity outside the super fund. Resi property in a SMSF won't happen for me at this stage. My personal investment strategy won't allow it. Later down the track, maybe.

 

[Marty McDonald]

I recently settled a home loan that would definitely not service if the guarantees from then SMSF loan were taken into account. I left the contingent liability out of the application and servicing but referenced it in my notes along with evidencing that the SMSF loan was self supporting from SG's and rent. No problem at 80% LVR. $700K loan too. I know of a few lenders who would think nothing of this and a few who would probably want me locked up! Interpretation and presentation...

 

[Rolf Latham]

I would if I knew anything useful. When I first started planning this, there was no requirement for personal guarantee and getting a SMSF residential loan did not affect my borrowing capacity outside the super fund. Now that personal guarantees seem to be required, this will affect my borrowing capacity outside the super fund. Resi property in a SMSF won't happen for me at this stage. My personal investment strategy won't allow it. Later down the track, maybe.

really really depends on lender and the actual deal.

Most dont treat these the same as a normal Guarantee to an external to SMSF trust

ta
rolf

 

[perthguy]

really really depends on lender and the actual deal.

Most dont treat these the same as a normal Guarantee to an external to SMSF trust

ta
rolf

Cheers Rolf. Of course later down the track when it is feasible, I will get proper professional advice. This is not an appropriate time to DIY (even if it is a SMSF)

 

[DexV2]

As for personal trustees I think roughly 70% of SMSFs have a person as trustee rather than a company. Crazy.

Hi Terry, are you saying that its better to structure a company as a trustee of a SMSF rather than an individual?

If so, could you explain the reasoning why?? Sorry I'm very new to financial stuff.

 

[Rolf Latham]

Hi Terry, are you saying that its better to structure a company as a trustee of a SMSF rather than an individual?

If so, could you explain the reasoning why?? Sorry I'm very new to financial stuff.

I will let Terry cover the legal and tax stuff.


from a lending POINT of view many lenders wont lend to personal trustees AND of those that do they tend to limit LVRs

ta
rolf

 

[Paul@PFI]

Hi Terry, are you saying that its better to structure a company as a trustee of a SMSF rather than an individual?

If so, could you explain the reasoning why?? Sorry I'm very new to financial stuff.

A Corporate Trustee is always better.
- Easy to add / remove a Director by making company changes using a Form 484. Human Trustees would need to change every bank account and investment into the names of each trustee AND also show that the interest is a SMSF one. In a portfolio of shares this means a new HIN - Fees to change etc.
- Liability
- ATO penalties. Worst ATO penalty is gaol. A Human Trustee. A Director of a Corporate Trustee wont get this penalty.
- Succession planning
- Borrowing for a SMSF human trustee may be governed by consumer credit laws where a corporate trustee is not.
- Issues with a sole member fund. A sole member with human trustee is not permitted. A sole member with corporate trustee is.
- A human trustee needs no guarantee as they sign for the loan as the borrower and the trustee in a single capacity. That's dangerous. Many lenders don't allow it for that reason.

I don't form SMSFs with human trustees. Its bad advice.

 

[Terry_w]

Hi Terry, are you saying that its better to structure a company as a trustee of a SMSF rather than an individual?

If so, could you explain the reasoning why?? Sorry I'm very new to financial stuff.

Definitely. I would refuse to set up a SMSF without a corporate trustee.

some reasons
1. asset protection
2. fines lesser (if non complying, breachese etc)
3. Administrative ease on admission of new members, death of existing member etc
4. distinguishes personal assets from trust assets
etc