The banks and SMSF borrowing: remember the bank is acting for itself — not for the SMSF trustee(s)

Christopher Balmford, MD

The banks are giving us all an "interesting time" as they review SMSF documents as part of lending money to SMSF trustee(s) to acquire assets for their SMSF through instalment warrant borrowing.

Several of the banks require certain (though different) wording in some of the documents. On the Cleardocs interface, we ask which bank is the lender and our system includes all the relevant bank's requirements that we know about — as long as those requirements comply with superannuation law . . . that last bit is the interesting bit.

The Banks' requirements — some warnings

If you are arranging SMSF borrowing through instalment warrants from a bank, then please be extra careful handling any changes the bank requires to the legal documents. Some branches of some of the banks are making odd requests. Indeed we, and our lawyers at Maddocks, have seen bank requests that, if implemented, would have caused the relevant SMSF to be in breach of superannuation law.

The key things to be alert to are:

• from time-to-time the banks change their requirements for the documents for SMSF borrowing; and
  
• to remember that when the bank reviews the documents, it is doing so to protect its own interests — so some of the changes it requests may not be in the interests of the SMSF, or its trustee(s), or member(s), etc.
  

How to protect yourself or your client

The way:

1. to protect yourself from the bank changing its requirements is to have the bank review your documents before the documents are signed. This is sensible because changing documents is easier — and cheaper — before they are signed than afterwards; and
   
2. to protect yourself from a bank change that would cause the SMSF to be non-complying, is to have a lawyer who is acting for the trustee(s) of the SMSF review those changes. Remember, the bank is acting in its own interests. The SMF trustee(s) need a lawyer on their side.
   

If the SMSF borrowing documents are Cleardocs documents, then it may make sense for you to have our lawyers at Maddocks review the bank's requirements. This is because Maddocks is so familiar with our documents and is getting familiar with the banks' requirements, familiar with responding to them, and familiar with who is the best person to speak to at each bank.

What we are doing to make SMSF borrowing easier for our customers and their clients

When a bank requires changes which Maddocks believes are acceptable, then the firm advises us to add those changes to the master document we use. In that way, when our customer orders a document package and tells us which bank is the lender, we produce documents that the bank will be happy with.

Your experiences?

If you have news or insights as to what the banks are doing or saying about SMSF borrowing, we'd be interested to hear from you. There's lots to learn about SMSF borrowing.

More information

For more information about SMSFG borrowing:

• you can read an article here — complete with link to interactive graphic overview: http://www.cleardocs.com/clearlaw/superannuation/smsf-iw-arrangements.html
  
• you can read earlier blog postings — look in the right-hand column on this page under 2009, in July, August and September; and
  
• can watch a video presentation from our lawyers at Maddocks and from a St. George Bank represetnative http://www.cleardocs.com/resources-smsf-borrowing-about.html