Announced on 20 April 2020, the Future Fund is a £500m support package targeted at innovative UK businesses. An initial commitment of £250m will be unlocked by private investment on a matched funding basis for businesses that typically rely on equity investment.
The Coronavirus Business Interruption Loan Scheme (CBILS) is not suitable for many early stage businesses. The Future Fund is looking to fill this gap, serving companies that would typically be relying on equity investment to fund their growth.
These early stage companies may have a strong future but have been unable to access other government business support programmes, such as CBILS, because they are either pre-revenue or pre-profit and are currently incurring losses and using cash.
The Future Fund has been designed to provide convertible loans of between £125,000 to £5m, subject to at least equally matched funding from private investors. The facility is seeking to bridge the timing gap to when the business may be able either to raise funding from an alternative source or there is an event such as an IPO. Funding under this scheme must be used solely for working capital purposes.
To be eligible, the company applying should be an unlisted UK registered company that has raised at least £250,000 in aggregate from private third-party investors in the last five years and has a substantive economic presence in the UK. The loan will be for a maximum of 36 months and attract a flat annual interest rate (unless a higher rate is agreed with the matched investors). The loan will be given on a ‘most favoured nation’ basis. i.e. if the borrower issues further convertible loan instruments on better terms then those terms will apply to the loans under this scheme.
If a funding round is undertaken prior to repayment of the loan, this results in certain stipulations and you can find out more information on the British Business Bank website or by speaking to an adviser.
The scheme is due to be finalised in the coming weeks and to launch in May. If you are an early stage company seeking investment keep an eye on the British Business Bank website for new information. As with any equity investment you should also seek advice from an expert before agreeing terms.
Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance
Government legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate advice from their financial adviser before making financial decisions. Information sourced from british-business-bank.co.uk and is correct as at 7 May 2020.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.