What is a Limited Recourse Borrowing Arrangement?
A limited recourse borrowing arrangement is a strategy used by self-managed superannuation funds (SMSF) to borrow funds from a third party lender and invest in a single asset, such as a residential or commercial property.
The asset or property is usually held in a separate trust structure, with minimal recourse for the SMSF. Meaning, the creditors might not be able to come after the SMSF for everything it has if something goes wrong. The asset purchased is used as security for the third-party loan.
Limited recourse borrowing arrangements are often used to buy large and valuable single assets, like property, but they can be costly to start and maintain.
There are a number of rules governing limited recourse borrowing, so it’s vital to speak to a qualified and licenced professional (financial adviser, accountant and/or lawyer) when considering this strategy.
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