Amid the ongoing uncertainty of the pandemic, many business owners are still in need of support to help them come out the other side, without having suffered too much in the way of losses. There have been a number of different schemes and support services provided since February to businesses of all shapes and sizes, but today we wanted to focus on just one. The Future Fund is perhaps one of the less-publicized support options for Covid-19 relief, but it has some significant advantages to businesses that meet the criteria. And more importantly, applications close at the end of September, so if you want to take advantage of it, you need to move fast. But what is the Future Fund, and how could talking to a business accountant help you succeed?
What is the Future Fund?
The Future Fund is one of many government-backed Coronavirus relief efforts to have hit the market over the last 6 months. It’s a £250 million fund to provide government-backed loans via the British Business Bank, worth between £125,000 and £5 million to innovative businesses in need of support through difficult times. The catch is – the money has to be matched by private investors.
The Future Fund was first created specifically to support start-ups and scale-ups, because these are the businesses who are finding that existing schemes – like the CBILS and the Coronavirus Job Retention Scheme – unsuitable for their needs. By offering this level of targeted support, the Future Fund can help pre-profit innovators to cover their costs and protect British innovation from the damage lockdown could cause.
But unlike a lot of the other relief efforts, the Future Fund is not a no-strings-attached grant. It’s a convertible loan note, which translates into equity during the company’s next fundraise or exit. This is otherwise known as a Convertible Loan Agreement (or CLA), and they have minimum standards set out by the government that you will need to meet, including the term of the loan, interest rates, use of the proceeds and equity conversion. But it’s not all doom and gloom – there are 4 areas businesses can negotiate with their private lenders, which impacts how generous the scheme is and how much you will benefit. These are:
- The conversion discount rate (at least 20%)
- The loan interest rate (at least 8%)
- An option valuation cap on conversion, set by private investors.
- Headroom on investments made within 90 days of the Future Fund note.
A business accountant can help you understand what the Future Fund could mean to your business, as well as give you all the information and guidance you need to negotiate with those private lenders. This could put you in a much better position to have your application accepted.
Are You Eligible?
The government has set out 5 simple criteria your business must meet if you want to apply for the Future Fund. These are:
- You must be UK-incorporated. If your business is part of a corporate group, then only the parent company is eligible to apply.
- You have raised at least £250,000 in equity investment from third-party investors over the last 5 years.
- None of your shares are traded on a regulated market, multilateral trading facility or other listing venue.
- Your business was incorporated on or before 31st December 2019.
- At least one of the following is true:
- Half or more of your employees are UK-based.
- Half or more of your revenue is from UK sales.
If you’re not sure whether your business is eligible, or if you want support in applying for the Future Fund, then we recommend you talk to a business accountant. They can help you understand the ins and outs of the scheme, whether it’s right for you, and if you should apply. A business accountant can also guide you through the application process, and ensure your records are all in order before you go ahead – bettering your chances of success.
How to Apply
Because the scheme is quite complex, there are 5 stages to applying and it’s actually the private investor, (or investors), who take the lead on compiling the application, not you. The application process looks something like this:
- The investor certifies that they meet the eligibility criteria, and provide complete details of the investment round through the Future Fund portal.
- Your business confirms the accuracy of the investment details before submitting the full application. A business accountant can help you complete this.
- The British Business Bank will spend a minimum of 21 days reviewing the application.
- If the British Business Bank approves the application, then all parties (investor/s, government and your business) will execute the Convertible Loan Agreement.
- The investor’s funds must be transferred to the bank account of the company’s solicitor. Once the solicitor confirms the receipt of all the funds, the British Business Bank will release the matched funding.
Before you apply, our advice is to talk to your business accountant for advice. Accountants are well-versed in the ins and outs of the Future Fund, can help you understand what’s involved and guide you through each step of the application process.
At Purple Lime, we are working hard to help guide our clients through the complex waters of the Future Fund. If you need any help with financial planning or want to know more about the Future Fund, please email hello@purplelime.uk.com, or call us on 01249 263 333 to talk to one of our team.