Online peer-to-peer (P2P) lending firm LendEx has revealed it has not seen evidence of SMSFs using aggressive limited recourse borrowing arrangements (LRBA) on the platform as inquiries for loan requests increase.
“Perhaps it’s because of the fact that we only use trusted advisers for our referrals, but we’re not seeing high-risk transactions across our platform,” LendEx chief executive David Ruddiman told selfmanagedsuper.
“It’s not to say we don’t see them at all, but they actually wouldn’t even get through our eligibility scorecard.”
LendEx offers limited recourse investment property loans to eligible, regulated SMSFs with a corporate trustee that also meet its lending guidelines and eligibility criteria.
Ruddiman revealed the average loan inquiry the P2P lender was receiving from SMSFs was about $500,000.
“So these are not massive real estate transactions and [for] many of them, even if the actual purchase price of the property is, say, a million dollars, about 40 per cent to 50 per cent of the purchase price is an equity investment by the fund,” he noted.
“So I don’t think that the gearing is high and that it’s going to be problematic.
“And when we look at the overall gearing, when you take into account the assets of the SMSF, the gearing is substantially lower across the LRBA plus the SMSF – it’s well south of 50 per cent.
“That tells us that the types of advisers that are referring clients to us are very considered in their approach as to who they’re making these types of recommendations to and helping facilitate these types of loans, and also that they’re part of a well-thought-out retirement planning strategy where the vast majority of the applicants are also SME (small to medium enterprise)-related parties looking to acquire non-residential real property, only commercial, retail or industry for business purposes.”
He added upwards of about 80 per cent of the applicants for LendEx were looking to secure their business’s well-being through acquiring real property via their super fund and then lease the property to a related party.
Furthermore, on average, these loans are repaid in 7.3 years.
“This is very quick if you consider that people are concerned about SMSFs being hamstrung with a lot of debt,” Ruddiman noted.
“In reality, they pay them down very quickly.
“Also if you look at the average LRBA loan balance overall, it is about $430,000, which is not aggressive gearing if you, again, compare it to the average fund size and account balance.”
LendEx had experienced an increase in inquiries from SMSFs, he said.
“Even though we’re an online P2P lending platform, we tend to get all our referrals for the SMSF lending side of the business from trusted advisers who have gone through our accreditation and tend to be specialists in the area, so they’re either accountants or financial planners who specialise in SMSF advice and related services,” he said.
“And those leads tend to come to us with a strong pre-qualification.”
He added the lender had also engaged with a number of mid-tier accounting firms in Australia.
“As their accountants and advisers go through the accreditation, the penny starts to drop,” he said.
“They realise there’s a considerable amount of work that they can do and value they can add for their clients, particularly around the SME market, because there is some potential for their clients to have some security over their business’s occupancy of premises through the acquisition of those premises by their SMSF, where they can control the outcome.”
LendEx does not participate in off-the-plan lending, unit developments or house and land packages.