HMRC has announced that the application process for the Future Fund will go live from Wednesday 20th May initially until the end of September 2020.
The Future Fund is designed to provide government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors.
The key eligibility criteria for the business are that:
- it is UK-incorporated and, if your business is part of a corporate group, only the parent company is eligible;
- it has raised at least £250,000 in equity investment from third-party investors in the last five years;
- none of its shares are traded on a regulated market, multilateral trading facility or other listing venue;
- it was incorporated on or before 31st December 2019; and
- at least one of the following is true:
- half or more employees are UK-based
- half or more revenues are from UK sales
Before going into the details, it is important to flag that this scheme in underpinned by Convertible Loan Notes which enables the investor both to opt to have their loan repaid and to earn interest on their investment. As a result, the investment from private investors will be outside the scope of SEIS and EIS tax relief.
The rationale for making the Future Fund incompatible with SEIS and EIS is to ensure that the government support goes to businesses that have been scrutinised by professional investors rather than by a cohort of friends, family and crowdfunders. This higher level of scrutiny is hoped to ensure fewer failures.
In addition, it would require legislation to bring the scheme inside SEIS and EIS which would have further delayed the launch which is time critical.
However, research undertaken by British Business Bank and the UK Business Angels Association indicates that over 85% of angel investors use EIS and SEIS to support their investments.
The British Business Bank will be delivering the Future Fund and the link to the scheme overview is here.
The application process will be investor-led. This means an investor, or lead investor of a group of investors, applies in connection with an eligible company. However, businesses will be able to register their interest.
The Future Fund will match up to 100% of the private investment from a minimum amount of £125,000 to a maximum of £5 million.
There are some restrictions on how the funds can be used and they must not:
- repay any borrowings;
- pay any dividends;
- pay any bonuses; or
- pay any advisory fees.
The loans will carry a minimum of non-compounding interest rate of 8% per annum. The level of interest can be higher if the business and private investors agree.
Unlike a standard bank loan, the interest is not payable on a monthly or annual basis. Rather, it will accrue until the loan converts at which point the loan and interest will either be repaid or convert in equity.
Under the scheme, the Convertible Loan Notes will mature after thirty-six months. The loan cannot be repaid early by the company except with the express agreement of the investors.
The Convertible Loan Note Agreement is predefined and cannot be negotiated. The template is available here.
A business needs to consider carefully whether the Future Fund is the right vehicle for them. The scheme has been primarily designed for businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme or Bounce Bank Loan Scheme as they are either pre-revenue or pre-profit.
We will continue to report any developments as they come through. In the meantime, please email firstname.lastname@example.org if you have any questions or would like any other information.