Unlocking SMSF lending for self-employed clients

Q. What’s behind the rise of SMSF lending?

For many, super balances are becoming one of, if not the biggest, asset they have. People are paying closer attention to how their super is performing, rather than just filing their statements away in the bottom drawer every six months.

SMSF members are also realising that they can invest in property without significantly impacting their take-home income, which has already been affected by the rising cost of living and increased mortgage repayments.

Q. Why don’t we see as much SMSF lending for the self-employed as PAYG borrowers?

Typically, self-employed borrowers have struggled to borrow using their SMSF to acquire property. Most lenders have rigid rules that favour PAYG members whose employers make regular super contributions on their behalf.

It doesn’t work that way for the self-employed. Small-business owners often don’t pay themselves regularly or pay money into their super funds regularly. That’s why RedZed takes a more flexible approach.

Q. How does RedZed’s approach differ from other lenders?

We look at how much the borrower has put into their fund over the past 12 months, which is fairly common practice. Where RedZed is different is that we will allow members to commit to making proposed additional contributions moving forward.

We verify whether they can afford to make the proposed additional contributions in the future. The best part is we accept both full and alternative income documents to show that self-employed borrowers can afford the extra proposed contributions.

Plus, we’ve just launched a brand-new serviceability platform, which includes an SMSF servicing calculator! It’s a real game changer because it has the same look and feel as the Quickli platform – it’s fast, it gives brokers confidence, all the resources are in one place, and it makes running SMSF loan serviceability scenarios a whole lot easier.

Q. What SMSF products does RedZed currently offer?

We have two SMSF products: one backed by residential property, such as houses, apartments, and units and the other backed by commercial property. We’ll lend up to 80 per cent of the value of a residential property and up to 75 per cent of the value of a commercial property.

Our commercial SMSF product is particularly valuable for small-business owners because it allows them to borrow and then have their business lease the premises owned by their SMSF. Instead of paying rent to someone else, they can operate out of a commercial property owned by their SMSF.

For the SMSF, this common investment strategy can provide portfolio diversification, asset protection, potential tax benefits, and potential future wealth generation for its members.

Q. How should brokers position these products?

RedZed’s SMSF products give brokers an opportunity to re-engage with their self- employed clients and start a conversation. They can reach out to their existing alt doc home loan clients in particular, who may have previously been unable to borrow using their SMSF due to rigid lender requirements, and let them know there is a new player in the market – one that understands them and has created products tailored to their needs.

Q. What can brokers new to SMSF lending do to get up to speed?

First up – get accredited with RedZed.

Second – work your way through our ‘Self-Employed Broker Academy’. It’s an in-depth digital training program designed to upskill brokers in servicing self-employed borrowers and we offer a course dedicated to the SMSF space.

Our BDMs are always happy to answer questions, run through scenarios, and assist during the application process.

We’ve always backed the self- employed. Now we’re helping them invest in their future with flexible SMSF loans tailored to their needs.