Loans available to the SMSF sector have not dried up, but lenders are spending more time considering the ability of funds to service the loans, including factors that may not be directly related to borrowings, according to a lending expert.
EWA Finance chief executive Michael Stephens said despite reports of the major banks no longer offering loans to SMSFs, “lending is alive and well” in the sector and many non-bank lenders continued to work with advisers, accountants and SMSF clients.
Addressing SMSF accountants at the Easton Wealth SMSF Adviser Conference in Sydney last week, Stephens pointed out there were a number of lenders still willing to offer loans for property, as well as equipment, debt financing and working capital.
He said while the lending policies and loan-to-value ratios varied between lenders, most had a strong focus on the ability of an SMSF to service a loan.
“Serviceability is a big issue. It is the flavour of the day for lenders at the moment and they want evidence of serviceability, and will look inside and outside the loan arrangement in their considerations,” he said.
“We have seen that when we take a deal to them, the lenders will look at whether it will be serviced in isolation or if it is part of a wider deal. Lenders will also look outside the loan at the character of the beneficiaries and they may still decline it based on conduct outside the loan.”
He said the reason for the increased scrutiny was due to significant structural change in the lending sector, which currently was experiencing the tightest conditions in the past 10 years.
“It is unbelievable what we are seeing on the receiving end during the application process with lenders seeking more and more information,” he said.
“What we see at face value as being a serviceable loan is not getting through, turnaround times are incredibly long and what would have been approved six months ago is now being declined.”
He cautioned attendees to remind their clients not to focus on interest rates when seeking a loan through an SMSF, despite it being a key consideration for most people.
“Interest rates are the last piece in the puzzle and are only a function of risk and reflect the lender’s risk appetite,” he said, adding clients should also be informed loan amounts, loan-to-value ratios and fees also need to be taken into consideration alongside rates.
“Savings will come from an appropriate policy rather than from naked interest rates.”