Self-managed super fund (SMSF) loans are turning 18.
The type of lending — a limited recourse loan that the SMSF uses to purchase investment assets — was born on Sept. 24, 2007, thanks to amendments in the Superannuation Industry (Supervision) Act 1993, which gave way to Limited Recourse Borrowing Arrangements (LRBAs) for self-managed super funds.
After the amendments were enacted, SMSFs gained the ability to borrow funds to purchase assets, such as property, as long as the loan was set up under a limited recourse borrowing arrangement.
Still, Richard Chesworth, Bluestone's head of specialized distribution, said, "There was so much uncertainty back in those days."
Prior to 2007, for example, SMSFs weren't allowed to borrow.
"And even now, they're only allowed to borrow in limited circumstances, which has to fall under certain regulations," Chesworth told Australian Broker. "You can only generally borrow to acquire the asset, like a home loan or investment property loan or a commercial loan."
The SMSF loan industry's next 18 years was full of ups and downs, including what Chesworth described as a "near-death moment" in 2014, when Recommendation 8 of the Financial System Inquiry proposed getting rid of LRBAs.
Fast forward to 2025, and Chesworth reflects on how far things have come. SMSFs are becoming increasingly popular, thanks to the potential for higher returns and more control over one's own finances. There were 653,062 SMSFs in Australia, according to the Australian Taxation Office's (ATO)'s June 2025 quarterly report. That's up from 563,474 in June 2019.
"There's certainly more and more people going to self-managed super funds," Chesworth said.
Not surprisingly, the SMSF lending market has grown in lockstep. The value of limited recourse borrowing arrangements (LRBAs) within SMSFs has surpassed $72 billion, with Bluestone’s own SMSF loan portfolio now accounting for more than 7% of its overall loan book.
"We've evolved," Chesworth said. "The barriers to entry have reduced. It's a lot easier. And I think there's more lenders in the market, and the efficiencies are flowing through. So it's become it's very low risk market in one way."
As more people turn to SMSFs as a wealth-building tool, demand is also rising for mortgage brokers and alternative lenders with a strong grasp of SMSF lending.
To mark its 18th anniversary, Chesworth provided a comprehensive overview of everything brokers need to know about SMSFs and their lending options.
"SMSF lending isn't complex if you have the tools to understand it," he said. "Once you understand the structures of what you can and can't do, it becomes simpler.
SMSFs are a type of superannuation where members essentially liquidate their industry super and start their own. They then have the ability to manage their funds and decide where to allocate resources, versus an industry super, where investments are dictated by an employer. Some of the benefits include member tax breaks and the ability to borrow money from the SMSF in order to purchase property.
Chesworth explained that while SMSFs are sometimes used to purchase property, they're more commonly used by individuals with a certain income level who seek greater control over their finances.
"There's a shift more to self-managed super funds when peoples' balances get to a certain level and they want to take control," he explained. "It's people generally saying, I want more flexibility and control for steady growth. Controlling when you buy an asset, when you sell an asset, structuring for their family wealth needs. You've got choice."
Chesworth added, however, "They're not right for everyone. It's really important to call out that they don't suit everyone. You manage your investments and get the flexibility. But on the flip side, there's a lot of responsibility that comes with it.
"With that flexibility, you've got your compliance needs; you need to make sure you meet the complying requirements of the fund. You need to lodge the annual returns," he said. "If you do things wrong, the ATO can charge you administrative penalties. For example, if you get a borrowing [number] wrong in a self-managed super fund, the ATO can charge you 60 penalty units, which is, I think, $19,800. So it's not all roses. You've got to make sure you have the time to invest and manage it properly."
The executive added that, despite being labeled “self-managed,” trustees do not handle every aspect of the funds on their own.
"It's really important that as the trustee of the fund, they surround themselves with the appropriate advice, an accountant to assist with the returns and someone else to assist with the audit process," Chesworth said. "If you are buying a property, you might need a solicitor to assist with the conveyancing. Then you need a mortgage broker to source the finance, because all this stuff you can't just do yourself. You need to use advisers in the space, even in self-managed."
Chesworth pointed out that SMSF loans cannot be used to purchase residential properties for personal use, but they can be used to acquire commercial property assets. This includes non-residential properties such as office spaces, retail outlets, warehouses, or any property classified as commercial and used for business purposes.
Importantly, the SMSF can purchase such a property and lease it to a related business, including your own. This arrangement means that instead of paying rent to an external landlord, your business pays rent to the SMSF that owns the property, effectively directing rental income back into your super fund.
"But it does need to be at market rates," Chesworth said. "You should have a formal lease in place, and that should be reviewed ongoing. And it should be up to formal terms."
This ensures that the arrangement is legitimate and that the person paying rent is doing so under formal conditions, just as they would if renting from an external landlord. But it also helps the trustee of the SMSF pay down debt and diversify the assets in their fund.
Chesworth also addressed the Labor Party’s proposal to double the earnings tax on SMSFs — from 15% to 30% — for balances that are more than $3 million. While the legislation has yet to pass, he clarified that the $3 million threshold applies to an individual’s total super balance, not the overall balance of an SMSF, which can include multiple members.
"The self-managed super fund can have up to six members; so it's the individual super balance," he said, adding that even if the changes go through, they’re unlikely to meaningfully influence SMSFs or the lending market around them.
"I don't think it will have a significant impact," Chesworth said. "People who have balances over $3 million, it's still a small percentage of the market."
Chesworth acknowledged that SMSF lending might appear complex, but he urged brokers not to be intimidated.
"Dont' shy away from them," he said. "They're 18 years old now; they're not new. They're established. And as a broker, you're licensed to provide credit advice. An accountant can't provide credit advice. A planner can't provide credit advice. The customers need brokers. So don't shy away from it. And partner with a lender who's got experience in the SMSF lending space, like Bluestone."
In addition, Chesworth urged brokers to surround themselves with the right partners.
"Do what you can to work together," Chesworth said. "If you can work with an accountant and a solicitor and a planner, you can drive a better outcome for your customer. Because that solicitor may only have two SMSF loans across their desk every year. And the broker might be able to ask questions to the solicitor, which helps them deliver a better outcome for the customer."
