Commonly it is individuals who borrow money from lenders. However, in various investment and business circumstances it may be appropriate for the borrowing entity to be a company, trust, or SMSF. The choice of which entity should borrow is typically determined by tax considerations after advice from an accountant, or asset protection considerations after advice from a solicitor.

If the borrowing entity is a company, most lenders will require the individual directors, but not shareholders, to provide personal guarantees. This means that if the company defaults on repayments, the lender will be able to chase the directors for any shortfall if the security is insufficient to repay the loan balance. A company borrower is most often used when the loan is for business purposes or a property development project. 

If the borrowing entity is a trust, most lenders will require the trustees to provide personal guarantees. If the trustee is a company then the directors of that company will need to provide the personal guarantees. A trust borrower is most often used when the asset beneficiaries are different from the trustees. The investment strategy may be to distribute future profits from the investment assets to beneficiaries on a discretionary basis, after future tax and asset protection advice. 

If the borrowing entity is an SMSF, the personal guarantee situation is the same as with other trusts. Most lenders do not lend to SMSFs over concerns about what specialist advice the trustees have received. The borrower is the SMSF but the individual security asset is held in a related bare trust. This is a complex area of lending with significant tax and legal implications if not done correctly and accordingly we advise investors to seek experienced advice before considering this strategy. 

If you are considering borrowing using an entity, we are happy to provide a no obligation structure consultation to help you make an informed decision about which entity is most appropriate for the proposed investment.