From www.smsfadviser.com: A loan agreement is essential for compliance during SMSF audits when the lender is not identified, according to industry expert Peter Johnson.

Without a loan agreement, auditors cannot ascertain if the loan arrangement meets necessary regulations, especially regarding limited recourse borrowing arrangements (LRBAs).

If the lender is a commercial institution, it may provide a level of assurance, but related party loans require careful scrutiny to ensure compliance with borrowing standards.