Getting Finance with a Family Trust in Australia

Getting Finance with a Family Trust in Australia

A family trust can be an excellent way to hold and protect assets, including investment properties. However, when it comes to obtaining finance for property purchases, using a family trust can sometimes be a bit more complex than borrowing in your own name. If you're considering using a family trust to secure a property loan, here's what you need to know.

Can You Get Finance Through a Family Trust?

Yes, it’s absolutely possible to get finance through a family trust, but there are a few key factors to consider. Lenders treat family trusts as separate entities for loan purposes, which means they’ll assess the trust’s financial situation and the trustee’s ability to repay the loan.

How Banks Assess Loans for Family Trusts

Trust Income and Financial History
Banks will typically assess the income generated by the trust and the trust’s financial history. If the trust generates regular income (for example, rental income from an investment property), this can be used to support the loan application. If the trust doesn't generate sufficient income, the bank may look at the personal income of the trustee or beneficiaries who may guarantee the loan.
Trustee’s Personal Guarantee
In most cases, the bank will require the trustee (often a company or individual) to personally guarantee the loan. This means that if the trust is unable to repay the loan, the trustee is personally responsible for the debt. Some lenders may be more flexible and allow multiple trustees or beneficiaries to be guarantors.
Lender Requirements and Restrictions
Not all banks are familiar with lending to family trusts, and some lenders may have stricter lending criteria or additional documentation requirements when it comes to trust arrangements. It's important to work with a lender who is experienced in financing family trusts, as they will understand the complexities and provide guidance on the best approach.
Trust Deed and Structure
Banks will often want to see the family trust deed to ensure that it allows for borrowing and is structured in a way that complies with their requirements. The deed should include provisions allowing the trust to borrow money and that the trustee has the authority to sign loan agreements on behalf of the trust.

Tips for Securing Finance for a Family Trust

Prepare Detailed Financial Documents
Just like with personal loans, you'll need to provide financial documents for the trust, including financial statements, tax returns, and details of the income generated by the trust. The clearer and more comprehensive the financial picture, the better your chances of securing finance.
Show Strong Personal Guarantees
If the trust doesn’t have a strong income or asset base, lenders will typically require personal guarantees from the trustee or beneficiaries. It’s important to ensure that those providing guarantees have the financial capacity to cover the loan if necessary.
Work with an Experienced Broker

Financing through a family trust can be complex, so working with a mortgage broker who has experience in this area can make a big difference. They can help you navigate the lender’s requirements, structure the loan effectively, and ensure you’re getting the best terms available.

Conclusion

Getting finance for a family trust can be a little more involved than borrowing personally, but it is possible with the right preparation. Banks will assess the trust’s income, structure, and the trustee’s personal financial situation. To increase your chances of approval, ensure the trust is set up correctly, the financials are in order, and consider working with a broker who understands trust financing.

Contact us today to learn how you can build your investment property portfolio using a Family Trust and navigate the complexities of securing finance with ease.

Disclaimer

The information provided on this website, including any articles, blog posts, and resources, is intended for general informational and educational purposes only. It is not, and should not be construed as, financial advice or a recommendation to act on any financial decisions.

While every effort is made to ensure the accuracy and relevance of the information, the content on this website is based on current legislation, regulations, and general financial practices. These can change over time, and the specific circumstances of individual financial situations may differ. Therefore, the information presented may not be applicable to your unique situation.

Before making any financial decisions, including but not limited to decisions regarding your superannuation or self-managed superannuation fund (SMSF), you should consult with a qualified SMSF specialist, financial advisor, or accountant who can provide advice tailored to your personal circumstances.

The author and website owner disclaim all liability for any loss or damage arising from reliance on the information contained on this website.

Getting Finance with a Family Trust in Australia

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