The Government has today launched the Future Fund and increased funding through Innovate UK for research and development businesses. These new schemes add a further £1.25 billion of Government funding to help high growth, early stage innovative businesses and research and development firms in the UK combat financial struggles due to Coronavirus crisis. These join the Coronavirus Business Interruption Loan Scheme, the Small Business Grant Fund, the Self-employed Income Support Scheme and the Coronavirus Job Retention Scheme (also known as furloughing) in the Government’s package to help businesses survive the economic downturn during the pandemic.
The Future Fund is delivered alongside the British Business Bank and is set to launch next month, with an initial £250,000,000 in funding from the Government (increasing to £500,000,000.) It offers convertible loans of between £125,000 to £5 million to early stage businesses facing financial difficulties due to the coronavirus pandemic.
The Future Fund requires match funding from private investors or institutions and these investors must provide at least the same amount as the Fund. This means that the Future Fund will not exceed 50% of the total funding provided. For example a business requiring a £3 million loan from the Future Fund, would need to find at least £3 million from other private investors.
Loans made under the Future Fund can only be used as working capital and cannot be used to repay debts, make dividend payments or for bonus payments to staff or external advisers.
Future Fund loans are available up to 36 months at a minimum interest rate of 8% per annum. The interest will not compound each year and is paid on maturity of the loan. The interest rate may be higher and will be at the same level as any agreed with private investors providing the match-funding.
The Future Fund is suitable for those companies that rely on equity investment and are unable to use the Coronavirus Business Interruption Loans Scheme (CBILS). For example, many early stage companies that are raising capital from private investors may not yet be generating a profit and would therefore be unlikely to meet the viability criteria for a loan under CBILS.
To qualify for a Future Fund loan a business must as a minimum:
Those companies that are part of a group, only the parent will qualify for the Future Fund and all businesses applying will be checked for fraud, money laundering and KYC checks prior to any loan being issued.
The loan will convert automatically into equity at the next qualifying funding round at a minimum discount rate of 20%. A qualifying round is raising equity funds to at least the amount of bridge funding provided under the Future Fund. If the business is sold or completes an IPO, then the loan may revert to the equity set by the most recent non-qualifying funding round or shall be repaid with a redemption premium so the repayment value is at least the same as the funding originally provided.
When the Future Fund loan matures the matched investors can decide if the business repays the Future Fund loan or if this converts into equity at the discount rate set at the most recent funding round. There is no valuation cap on the price at which the loan converts into equity. If matched investors have agreed a valuation cap, then the Government will also have the right to the same terms.
Businesses should be aware that the Government is entitled to transfer the loan and any conversion of the loan to institutional investors choosing to acquire the Future Fund portfolio or to their Government entities or central Government departments.
Innovate UK will manage £750 million of grants and loans for small and medium sized R&D firms, the majority of which are already customers of the national agency for innovation. 2,500 existing Innovate UK customers can opt-in to accelerate their grant and loan payments, other existing customers may also access additional support and 1, 200 firms currently not receiving funding will have offers made to them.
Four days ago we reported that CBILS had reached 6,016 approved loans. Rishi Sunak, the Chancellor announced at the Daily Briefing today that 12,000 CBILS loans have now been issued to small businesses. Applications to the scheme have reached 35,000 and the Chancellor quoted a current acceptance rate of 80% to 90%.
140,000 firms have now applied to the Coronavirus Job Retention Scheme, seeking funding to cover the wages of one million people that would have otherwise been at risk of losing their jobs. The Chancellor stated at the Daily Briefing that cash will be received by these businesses in the next six working days.
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