LRBA requirements checklist: what the fund needs before it can borrow

• SMSF trust deed, current version, permitting borrowing, granting of security and the holding of assets through a bare trust; older deeds often need an update
• Corporate trustee for the fund, with the members as directors; individual trustees are declined by most lenders
• Bare trust deed establishing the holding trust, with a separate corporate trustee, drafted for the specific property and lender
• Investment strategy that addresses property, gearing, liquidity and insurance for the members
• Fund financial statements and audit for the last two years, or establishment documents for a new fund
• Member statements showing balances, contributions and any pensions

The fund can borrow to buy a single acquirable asset: one property on one title, or multiple titles only where they cannot be dealt with separately. It can be residential or commercial. Residential property cannot be bought from a related party or lived in or rented by a related party. Commercial property that is business real property can be bought from and leased to related parties at market rent. Borrowed funds can maintain and repair the property but cannot improve it or change its character, and the fund cannot borrow to build.

Lenders want the fund to service the loan from rent plus contributions, with a buffer. Most require the fund to hold liquid assets after settlement, commonly 10 per cent of the property value or a set dollar amount, so that vacancy or a contribution gap does not cause default. Member contributions are counted only where they are consistent and within the caps, and the lender will look at the members' ages and employment.

Establish or update the fund and deed. Set up the corporate trustees. Get the investment strategy in order. Obtain pre-approval from an SMSF lender so the fund knows its budget. Set up the bare trust for the specific property after the contract is signed in the correct name, because getting the contracting entity wrong is a costly and common mistake. Then valuation, approval and settlement, typically six to eight weeks.