Glossary

Limited recourse borrowing arrangement (LRBA)

What an LRBA is, why SMSF lending is structured this way, and what "limited recourse" actually limits.

A limited recourse borrowing arrangement, or LRBA, is the structure a self-managed super fund must use to borrow money to acquire an asset, under which the lender's recourse in the event of default is limited to the single asset held in the bare trust, rather than the fund's other assets. This limited recourse feature is a legislative requirement for SMSF borrowing, not a lender preference, and it shapes how conservatively lenders assess these facilities, since their security is genuinely confined to the one property. Trustees use an LRBA to allow the fund to acquire a commercial property, sometimes one used by the trustees' own business, without breaching the general rule that superannuation funds cannot borrow. Lenders financing an LRBA look closely at the fund's contribution history, its liquidity outside the asset being acquired, and the property's ability to service the loan through rental income.

Related

SMSF commercial loans · Bare trust

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