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How the SME Recovery Loan Scheme (GS3) Could Help Your Business

The SME Recovery Loan Scheme (GS3) continues to support small to medium sized enterprises through the lasting impacts of the COVID-19 pandemic.

There has been a lot of government support since the pandemic reared its ugly head, both at federal and state – and even local council – levels. Much of this stimulus has (thankfully) been centred around SMEs and keeping them alive, so that business owners can continue to employ local people and support our thriving small business sector. 

Of course, some industries have been hit harder than others and we acknowledge the struggles of hospitality, retail and tourism businesses in Victoria, just to name a few.

As the economic impact of COVID continues, many of the grants and schemes have been extended, and one recent example is the Federal Government’s SME Recovery Loan Scheme, which was due to wrap up on 30 June in its scheme 2 format (GS2). These GS2 loans were 5-year principal and interest loans backed 50% by the government for small businesses affected by COVID-19, or the March 2021 floods, to help stimulate growth and employment. 

With the scheme due to expire on Wednesday 30 June, the Federal Government has launched the SME Recovery Loan Scheme 3 (GS3), which will continue to provide SMEs with favourable loan conditions that support economic recovery from that date until 31 December 2021. 

Who is eligible for the SME Recovery Loan Scheme (GGS3)?

Businesses that were recipients of Jobkeeper payments, or impacted by the floods in eligible LGAs in March 2021, may be eligible for the Federal Government’s SME Recovery Loan Scheme. 

The specific eligibility criteria for the SME Recovery Loan Scheme (GGS3) is as follows:

  • Must have received (or have been eligible to receive) the Final Quarter JobKeeper Payment between 4 January 2021 and 28 March 2021 (at any time during this period) OR have been an eligible flood-affected business (no need for JobKeeper eligibility for flood-affected businesses)
  • Must have an annual turnover of less than $250 million
  • Cannot be secured by a residential property – must be Unsecured or Commercial Property Secured
  • Must have a valid ABN and be a tax resident of Australia

What are the details of the SME Recovery Loan Scheme (GGS3)?

The loan scheme is designed to support the recovery of small to medium enterprises by offering them loans up to $5 million (though some lenders will only offer up to $1 million per ABN) with minimal fees.

Here are the terms:

  • 10-year loan term (principal and interest)
  • $0 application fee and $0 monthly fee (typically from the bank)
  • Up to 24 months repayment holiday if needed but this is assessed on a case-by-case basis (generally banks do 3-6 months if a business needs a loan holiday)
  • 80% backed by government
  • Rates vary from 2.60% odd to 7.50% (max) depending on the lender and if commercial security is used or there is no security (normally personal guarantee/GSA only is deemed ‘unsecured’).

Valid Purposes of Loans

The SME Recovery Loan Scheme (GGS3) allows businesses to use funds:

  • To refinance other bank debts (unlike GS1/GS2) but the loan being refinanced must NOT be in arrears greater than 30 days at the time of the application
  • To acquire/purchase a business
  • For working capital
  • For capital expenditure for business assets only (not personal)
  • For refinancing existing GS1 or GS2 loans
  • To purchase commercial property (not residential)

Invalid Purposes of Loans

Finance received through the the SME Recovery Loan Scheme (GGS3) cannot be used:

  • To refinance a Secured loan into an Unsecured loan (including loans currently secured by a residential property)
  • To purchase a residential property
  • To lend to an Associate Entity
  • To purchase financial products
  • For customers in EA or Bankruptcy
  • To lease/rent/hire existing assets halfway through their effective life
  • To repay a commercial credit card debt

How do you take advantage of the SME Recovery Loan Scheme (GGS3)?

If you’re keen to explore how the loan scheme could help your business, you can either go directly to your bank and chat to them about your eligibility or talk with a finance broker to determine the best bank for your unique situation.

Be aware that if you’re going directly to a bank, it’s usually best to apply at the bank where your business predominantly trades – as the loan can be used for multiple purposes. If you go to another bank, often the purpose of the loan must be Working Capital (but this varies bank to bank).

Your bank will want to see EOY 2019 and 2020 financials, plus all BAS statements from 1 July 2020 until the present day. They will likely want a 12-month cash flow forecast to assess eligibility of the loan as well.

The banks will want to know that the business is able to service the new scheme loan over the 10 year term in addition to other business debts it has (given the current net profit after depreciation & relevant addbacks). Additionally they’ll also want to know that the directors of the business can continue to afford their personal home loans, living costs, and other commitments.

As always, feel free to reach out to one of our BlueRock Melbourne-based finance brokers who are well-connected in the market and can help you to assess the best approach based on your unique needs.

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