June 18, 2020
Undoubtedly, most of the businesses are dealing with great difficulties due to the COVID19 pandemic. Therefore, to help the companies to cope with this period of financial disruption, on 20 April, the Chancellor announced the Future Fund Scheme. Via this scheme convertible loans ranging from £125,000 to £5 million will be issued to innovative companies that mainly rely on equity investment.
The Future Fund scheme is open now and you can apply for this until the end of September 2020. At present the government has made available £250 million for the Future Fund; however, they will keep this amount under review.
We have elaborated the key terms and conditions of the scheme below.
To qualify for the scheme you must meet the following criteria –
1- The company is a limited company incorporated in the UK on or before 31 December 2019
2- The company has raised at least £250,000 in equity investment from third-party investors in the last 5 years (from 1 April 2015 to 19 April 2020, inclusive)
3- If the company is a part of a corporate group, then only the parent company is eligible
4- None of the company shares are traded on a regulated market, multilateral trading facility or other listing venue
5- At least one of the following is true for the company –
a) half or more employees are UK-based
b) half or more revenues are from UK sales
It is clear that parent companies registered outside the UK are not eligible and the businesses with majority of overseas employees and revenues outside of the UK do not qualify for this scheme.
Key aspects of the Future Fund Scheme
Who are the eligible investors?
The British Business Bank specifies that eligible investors must fall within one of the following categories
Note that all other investors must fall within one of the above categories in order for them to be eligible to invest in the convertible loan agreement. It is the responsibility of other investors to ensure they are eligible.
How it works? In brief –
1- Investors those who want to apply for match-funding under the Scheme will create an account on a dedicated website.
2- The investor, or lead investor of a group of investors, will certify that they meet the scheme eligibility criteria and provide key investment details.
3- The company will confirm that all the details submitted are accurate.
Once it is determined that the investment meets all the eligibility criteria, the match funding will be provided under a Convertible Loan Agreement.
The investors and the company must agree on details such as the discount rate (at least 20%), the interest rate (at least 8%), and – optionally – a valuation cap and headroom amount based on the Agreement template, available on the Government’s website. It must be noted that other than these details, there is no room for negotiations in the Agreement.
Keeping in view the terms and conditions of the Future Fund and its application process, it is obvious that you will have certain questions regarding the process and the benefit of availing fund via this scheme. Therefore, it is advisable that you must seek professional advice from a firm with good experience of handling business accounting and business tax works as this will enable you to understand the potential benefit of the Future Fund scheme for you, considering the actual financial health of your business.