Future fund – UK Government response to COVID-19
From 20th May a new fund designed to support UK businesses affected by COVID-19 is open for application.
Future Fund – Background
The Chancellor described it as ‘critical’ to not just help maintain current companies and jobs, but to continue to encourage nascent businesses, jobs and technologies of the future.
It is therefore aimed at companies which are pre-revenue or pre-profit, relying on equity investment to fund their development, with the goal of helping to protect those UK start-ups and businesses which drive research and development.
What is it?
From the scheme, the government will provide funding ranging from £125,000 to £5,000,000 through a convertible loan instrument.
This is known as a Convertible Loan Agreement or CLA.
This scheme will be delivered in partnership with the British Business Bank (BBB) and £250m has initially been made available to the Fund.
Who are eligible?
- UK-incorporated limited companies (“limited” companies); LLPs, sole traders, unincorporated entities and companies whose shares or other securities are listed on a recognised stock exchange, regulated market or other trading platforms are not eligible
- Companies which were incorporated on or before 31 December 2019
- If the applicant is a group of companies, the ultimate controlling company will be the applicable party
- Companies which have raised at least £250,000 in aggregate from third party investorsi in a previous funding round in the last five years (1 April 2015 – 19 April 2020, inclusive)
- Companies, as described above, which have at least half of their employees or sales UK-based
What is matched funding?
Under the Future Fund, the U.K. government shall make unsecured bridge funding available alongside other third party investors. This means that third party investors (matched investors) must at least match the amount of bridge funding provided under the convertible loan.
What are some of the key terms?
- Funding must be used for working capital purposes only
- Interest is charged at no less than 8%ii per annum, non-compounding
- Interest will not be payable on a typical monthly/quarterly basis – the interest will be charged on conversion of a loan into sharesiii or an event of default of the investee company
- The CLA will mature 36 months after execution date
What will happen when the CLA matures?
The loan could either convert into shares, at a discount rate of at least 20%, or become repayable, depending on circumstances such as certain exit events.
The investee, however, cannot elect to repay the loan; this remains at the discretion of the Future Fund.
How does the CLA rank with existing debt in the company?
The CLA will rank alongside other unsecured debt and obligations of the company. It will be subordinated to any existing secured debt the company may already have.
Other important information about applying
- This scheme is running up until at least end of September 2020
- The scheme will operate on a “first come, first served basis” – however, measures are being taken to reduce “privileged access” of larger investors submitting numerous applications all at the same time
- The application is initiated by the lead eligible investor. When this has been submitted, the investee company will then be invited to fill out the application for the CLA; an application cannot be submitted by the investee company
- Applications are expected to take approximately 21 days from initial application to funding being awarded, dependent on speed and quality of information exchange and review
- You are still eligible for the CLA if you have received other government support, such as the Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Bank Loan Scheme (BBLS).
- Companies in any sector can apply
For more information on or assistance with the Future Fund or other government incentives available to businesses, please contact your usual contact at BGM or BGM Corporate Finance. Further information on the Future Fund is also available through the links provided below:
- Future fund information from the government - https://www.gov.uk/guidance/future-fund
- British Business Bank information website - https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/future-fund/
i Investment from non-executive directors and investment directors can count towards the initial funds raised
ii If agreed between the investee company and the investors, this can be a higher rate
iii Companies may elect to repay interest prior to conversion
We will continue to monitor Government announcements and provide updates as the situation evolves over email, on our website, LinkedIn and Twitter account.
Please contact your BGM/BGMCF advisor or email email@example.com if you would like any assistance.