Awan Hammad

    Hi Mark

    There are no legal rules that require exactly how loan agreements need to be prepared for SMSF’s. From a SIS perspective the main requirement is that they are prepared on an arm’s length and commercial basis as per section 109 of SIS.

    If the initial agreement can be amended and further money is lent and a new agreement (or amendment) is prepared my view is that this will be acceptable as long as it has been done on an arm’s length and commercial basis. For the loan agreement to be done on an arm’s length basis you would need to consider factors such as:

    1) Is an arm’s length interest rate being charged?

    2) Is there security in place re the loan?

    3) What is the term of the loan?

    4) What due diligence has been done in relation to the borrower and their ability to repay the loan?

    5) Is the loan to a related party?

    6) Does the loan comply with the Fund’s investment strategy?

    It would be great to get other forum members views on this query.



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