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what is the Coronavirus Future Fund?
22 May 2020
The UK Government announced its plan to help high-growth companies navigate COVID-19 in the form of the Future Fund. But what is a future fund? And can you access it?
How much can I obtain & how will it be delivered?
The Government has committed a pot of £250 million to be invested in innovative companies who are facing financing difficulties due to the Coronavirus pandemic. It’ll be delivered in partnership with the British Business Bank, and will provide convertible government loans, ranging from £125k to £5m, to UK based businesses. However, any investment from the Fund will need to be matched by the same amount from private investors.
How do I know if I qualify?
To qualify for funding, businesses must:
- Be an unlisted UK registered company;
- Have raised £250,000 in aggregate from private third party investors, in a previous funding round, in the last five years and have a substantive economic presence in the UK.
How long is the funding available for?
The scheme is open from May 2020 and will currently run until the end of September 2020.
Who is this aimed at?
The fund has been created to help innovative businesses impacted by the Coronavirus outbreak, that rely on equity investment and may not be eligible to access the Coronavirus Business Interruption Loan Scheme.
Although the government haven’t precluded any sector from applying, we expect that early stage, high growth businesses in their initial investment or research and development stage – likely from the science, technology and digital sectors – will potentially benefit the most from the fund. These businesses are likely to be loss making and will not be able to access CBILS.
Start-ups are unlikely to be eligible and companies who don’t have private investors already lined up will find it much harder to access the right funding. It’s likely the government have set these terms to avoid high risk start-ups, as the mortality rate for these types of companies is substantial.
The application process is investor-led. This means an investor, or lead investor of a group of investors, applies in connection with an eligible company. The funding should be used solely for working capital purposes and must not be used to:
- Repay any shareholder loans;
- Pay any dividends;
- Pay any bonuses;
- Pay any advisory fees.
The loans will have a minimum of 8% per annum (non-compounding) interest charge applied. Unlike a typical bank loan, the interest is not payable on a monthly basis but will accrue until the loan converts. At this point, the interest will either be repaid or convert in equity. The loan will mature after 36 months. The loan cannot be repaid early by the company other than with the agreement of all of the investors.
Innovate UK customers
Innovate UK, the national innovation agency, are also offering up to £200 million grant and loan payments for its 2,500 existing customers on an opt-in basis. An extra £550 million has also been made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently receiving Innovate UK funding.
It’s really good to see the Government responding to lobbying asking for financial support to help the start-up/fast growth/innovative part of the market. However, it’s likely that many dynamic, fast-growth businesses just won’t be able to take up this initiative, because they simply won’t qualify or they won’t be able to get the funding required from private investors.
As more than 50% of CBILS applications are typically declined, the funding still appears not to be reaching a number of companies in financial need. It seems unlikely that the Future Fund will bridge much of this gap.
We’re yet to see if the £250 million pot has increased, as this is a modest amount aimed at a small proportion of the business community. I’d have liked to have seen more money committed to a wider range of businesses, with a less complex mechanism to ensure we continue to support, and kick start the recovery of this rapidly growing part of the market.
Need help with financing?
Assessing the suitability of this funding for your business could be complex and we recommend engaging with a professional adviser to help you to review your suitability.
Now there are multiple COVID-19 schemes running, choosing the right option for your business is really important. Our Corporate Finance team have access to key bank contacts and keep their finger on the pulse of all new funding schemes available and can advise on all options.