- Future Fund Scheme: what is it and is your business eligible?
Future Fund Scheme: what is it and is your business eligible?
Future Fund Scheme: what is it and is your business eligible?1st June 2020 - Published by Kuits corporate team
What is it?
The Future Funds scheme is a Government initiative intended to help innovative start-up companies experiencing financial pressures due to the coronavirus pandemic and which cannot benefit from the Coronavirus Business Interruption Loan Scheme (CBILS).
Companies can borrow between £125,000 and £5 million as convertible loans provided “matched funding” of an equivalent amount is obtained from private investors.
Currently, there are no business type exclusions from the scheme and any kind of business can apply – start-ups to large multi-nationals in any business sector.
How does a company qualify?
Companies must be able to satisfy the following tests to benefit from the scheme:
- the company must be based in the UK and generate at least 50% of its revenue from UK sales OR have 50% or more of its employees based in the UK
- pound for pound match funding must be available from third party investors
- £250,000 must have been raised from third party investors in the last five years
- the company should be unlisted but incorporated in the UK before 31 December 2019
- if the company is part of a group, only a UK registered parent can apply for a loan
- no coronavirus impact need be shown
The scheme opened for applications on 20 May and closes at the end of September.
What can the loan be used for?
The loans are to be used for working capital purposes and cannot be used to repay other borrowings, to pay dividends or bonuses to shareholders or employees or to pay external advisers who have helped to arrange the loan.
How does it work?
Companies will pay 8% interest to the Treasury on maturity of the loan, which has a maximum term of 3 years.
The loans are convertible and a Future Fund loan automatically converts to equity on the next fundraising of at least the same amount of the loan. The terms of the conversion include:
- a 20% share value discount in favour of the Treasury
- the converted shares must remain part of the most senior share class
- the Treasury can sell the shares to institutional investors as part of a packaged Future Fund portfolio
- if a more favourable convertible loan is entered into, then those more favourable terms must also apply to the Future Fund loan
The legal bit
The British Business Bank has published a form of convertible loan agreement and associated documents which will be used for loans made pursuant to the scheme.
Kuits can assist you throughout the process of applying for a Future Fund loan, including advising on the terms of the loan documentation and facilitating completion. Please contact corporate partner Jan Winstanley on 0161 838 7884 or email firstname.lastname@example.org to find out how we can help.