Final Guidance on the Future Fund
In our blog post on the 4 May, we provided an overview of the Future Fund loan scheme for UK limited companies, which was based on the initial guidance published by the Government on 20 April this year.
Since then, the British Business Bank has published final guidance about the Future Fund, which provides a number of additional details.
Your business will be eligible if:
- It has a substantive economic presence in the UK – this means a company must either have: 50% or more of its employees based in the UK or 50% or more of its revenues from UK sales.
- It has raised at least £250,000 in private third-party equity investment in the last 5 years; and
- It can attract private third-party investors and/or institutions to match or exceed the funding from the Future Fund.
The conditions to the bridging loans being provided include:
- The loans shall automatically convert to equity on the company’s next qualifying funding round at a minimum conversion discount of 20%.
- The bridge funding will carry interest of no less than 8% with the loan’s term being a maximum of 3 years.
- The use of the bridge funding shall be used only for working capital purposes and shall not be used by the company to repay borrowings or make bonus payments to staff or directors.
- The business will also be unable to create any indebtedness in preference to the bridging loan granted by the Future Fund.
Including the following:
- Loans advanced under a Future Fund convertible loan agreement cannot be used by a company to repay shareholders loans, pay dividends or other distributions, or (for an initial 12 month period) make any bonus or other discretionary payments to any employee, consultant or director of the company other than as previously agreed in writing and as paid by the company in the ordinary course of business.
- Investors and the Future Fund will both invest using a convertible loan agreement, which is predefined and cannot be negotiated.
- Any investor will need to fall within a specific investor category, in order to be eligible. The relevant categories include “investment professional”, “certified sophisticated investor”, “self-certified sophisticated investor” and “certified high net worth individual”; and
- As any match funding will be in the form of a convertible loan, it will not qualify for EIS or SEIS.
Applications for Future Fund loans opened on 20 May this year. According to statistics which were published by the British Business Bank on 16 June, 577 applications for Future Fund loans had been received by 14 June, and 155 convertible loans had been approved by this date, with such loans having an aggregate value of £146 million (equating to an average value of just over £940,000 per approved loan). £250 million was initially made available for the scheme and the Government has stated that the amount available will be kept under review, and may be increased. The Future Fund will initially be open until the end of September this year.
The Future Fund is being delivered by the British Business Bank, and the advice on their website is that applicant companies should take legal advice in order to understand the full implications of participating in the Future Fund. Applicants will also be required to nominate a solicitor and confirm that the solicitor is prepared to act and is able to receive and hold client funds.
Please contact Teri Hunter, Peter Woolley or any member of the Moorcrofts’ Corporate Team, if you would like further information on the Future Fund or other debt or equity financing.