How SMSFs Are Powering the Growth of Private Lending in Australia

The Rise of SMSFs in Alternative Finance

Australia’s financial landscape is rapidly evolving. One of the biggest drivers of change is the growing intersection between Self-Managed Super Funds (SMSFs) and non-bank private lending. What once seemed like separate areas of finance retirement savings and private lending are now converging to create a new source of capital and opportunity for investors, borrowers, and lenders alike.

This article explores how SMSFs are playing a pivotal role in the rise of alternative funding and how Innovate Funding helps connect sophisticated investors and brokers with trusted private lending opportunities.

Understanding SMSFs and Their Appeal

A Self-Managed Super Fund (SMSF) allows Australians to take direct control of their retirement savings. Unlike traditional super funds managed by third-party institutions, SMSFs are run by their members giving them the freedom to choose how and where to invest.

This flexibility enables SMSF trustees to diversify beyond shares and term deposits, investing instead in tangible, asset-backed opportunities such as private lending, property, and commercial finance.

According to the Australian Taxation Office, SMSFs collectively hold more than $800 billion in assets making them one of Australia’s largest pools of private capital. For investors seeking higher returns, private lending provides an attractive, secured, and income-generating option.

Why SMSFs Are Turning to Private and Non-Bank Lending

1. Diversification and Stronger Returns

Traditional investments like shares and bonds remain valuable, but many SMSFs are diversifying into private lending for higher, more stable returns. Lenders in this sector can often achieve interest rates of 8–12% p.a., depending on risk and loan structure.

2. Reliable Income Stream

Private lending provides SMSFs with regular interest payments, which improves fund liquidity and supports consistent cash flow — a key advantage for trustees managing ongoing retirement income needs.

3. Secured Asset-Backed Investments

Most non-bank and private loans are secured against real estate, reducing exposure to volatility compared to unsecured investments. This asset security aligns well with the long-term, conservative approach typical of SMSFs.

Why Non-Bank Lenders Value SMSF Capital

Private and non-bank lenders, including Innovate Funding, recognise SMSFs as a powerful source of stable, patient capital.

Here’s why this relationship works so well:

1. Deep Capital Pools: SMSFs collectively manage hundreds of billions in investable funds, providing a vast source of liquidity for Australia’s private lending market.

2. Long-Term Outlook: SMSFs focus on sustainable, low-volatility growth — aligning with the principles of secured, asset-based lending.

3. Regulatory Alignment: Reforms from ASIC and the ATO continue to clarify how SMSFs can engage in lending, strengthening compliance pathways for investors and fund managers alike.

How SMSFs Participate in Private Lending

For SMSF trustees looking to diversify into non-bank lending, understanding the process and risks is key.

1. Understand the Risks

While private lending can deliver higher yields, it’s essential to evaluate the Loan-to-Value Ratio (LVR), security type, and borrower profile. Working with reputable lenders such as Innovate Funding ensures every transaction is backed by due diligence and professional oversight.

2. Diversify Investments

Spreading capital across multiple loans, property types, and risk categories can mitigate exposure and stabilise returns — an important best practice for any SMSF investor.

3. Partner with Professionals

Engage qualified SMSF advisors and private lending experts to structure investments correctly and ensure compliance with Superannuation Industry (Supervision) Act (SIS) requirements.

Innovate Funding: Bridging SMSFs and Private Lending

At Innovate Funding, we act as the connection between private capital, brokers, and property-backed lending opportunities.

We work with investors, including SMSFs, to structure compliant, secure, and transparent loan arrangements through our extensive network of private lenders.

Our services include:

• First Mortgage Loans for residential or commercial property

• Second Mortgages for equity release or business capital

• Bridging Loans for time-sensitive transactions

• Short-Term Business Loans for cash flow and expansion

By combining speed, flexibility, and compliance, Innovate Funding helps SMSFs and investors participate safely in Australia’s expanding non-bank lending market.

The Bigger Picture: Alternative Finance for Australia’s Future

The synergy between SMSFs and non-bank lending represents a broader shift toward alternative finance where private capital plays an increasingly vital role in funding property, development, and business projects.

As traditional banks continue to tighten lending criteria, non-bank lenders and SMSF investors are filling the gap providing essential funding for projects that drive growth across Australia.

This evolution supports a more diverse, resilient financial ecosystem, empowering Australians to build wealth while supporting real-world economic activity.

Conclusion: Strategic Opportunities for SMSFs and Investors

The convergence of SMSFs, private lending, and non-bank finance is redefining how Australians invest and borrow.

SMSFs gain access to asset-backed, income-generating opportunities, while lenders benefit from long-term, stable capital.

With experienced intermediaries like Innovate Funding, both sides can participate confidently, backed by transparency, compliance, and proven market expertise.

For SMSF trustees, brokers, or investors seeking to explore private lending opportunities, visit our Private Lending in Australia page or contact Innovate Funding today to discuss your goals.

Frequently Asked Questions (FAQs)

1. Can SMSFs invest in private lending?

Yes. SMSFs can allocate part of their portfolio to private lending, provided the investment aligns with their fund’s strategy and complies with ATO and SIS regulations.

2. Is private lending through Innovate Funding compliant with SMSF laws?

Yes all lending structures are established in line with SIS Act compliance requirements, and trustees are encouraged to seek independent financial advice before proceeding.

3. What returns can SMSFs expect from private lending?

Returns vary depending on loan type, LVR, and borrower profile, but typically range from 8–12% per annum, depending on risk tolerance and investment term.

4. Are SMSF investments in private lending risky?

All investments carry some level of risk. However, loans are generally secured against real property, which provides a level of protection compared to unsecured lending.

5. How can Innovate Funding help SMSFs get started?

We assist trustees by structuring secure, compliant lending opportunities across Australia and managing the due-diligence process to ensure peace of mind.