Government ‘Future Fund’ online portal opens for applications

By Melissa Welch, Corporate and Commercial Associate

Following on from our recent article, Future Fund: a strong government compromise or an unrealistic request?, we’re pleased to see that the online portal has now opened for those wishing to apply.

Further clarification around applying for the fund has been issued since our last article, so now seemed like a good time to provide an update on the terms of the fund so that potential applicants are well-informed before making an application.

The Future Fund – a brief overview (in case you missed it last time!)

In partnership with the British Business Bank (BBB), the government announced that it has earmarked £250m to go towards ‘bridge-funding’ start-ups, through the use of convertible loan notes, helping them to maintain cash flow.

However, the devil lies largely in the detail, and the government has laid out eligibility criteria which must be met by all businesses hoping to qualify:

1. Business must be an unlisted UK-registered company and have raised a minimum of £250,000 in equity investment in the last five years and have a “substantive economic presence in the UK”
2. All applications must be matched by additional third-party investors

Provided the business in question can demonstrate the above criteria, they will be eligible to apply for a business loan of between £125,000 and £5m, at an interest rate of 8% (which may be negotiated).

Further clarification provided this week (w/c Monday 18th May 2020), states:

1. Applications must be submitted via the online portal
2. The lead investors only, rather than the company, must make the application
3. Only very limited commercial points may be negotiated
4. Matched investments will not benefit from EIS/SEIS treatment
5. The system will work on a first-come-first-served basis

Are the terms negotiable?

In short, no. To streamline the process the Government has confirmed that only the following four commercial terms are negotiable:

1. The interest rate (which will be at least 8%)
2. The conversion discount rate (which will be at least 20%)
3. Any headroom for investments on the same terms which may be made within 90 days of the Future Fund documentation being executed (although such amounts will not be matched);
4. Any valuation cap on conversion

Otherwise, the terms of the convertible loan agreement to be entered into are non-negotiable.

How to apply…

Applications for the Future Fund opened on Wednesday 20th May, via an online portal. All applications must be made by the lead investor rather than the company, and the lead investor will need to upload corporate information regarding the company it wishes to invest into (a full list of which is set out in the FAQs linked below).

The lead investor will also need to confirm the total amount of funding to be raised plus contact details for all other matched investors. Without these details, the accompanying reasons for applying and the intended use of the funds, the Government have indicated that they will be unable to fully assess the application.

Once the above has been satisfied, the company hoping to receive the investment will need to provide further information. This includes recent turnover figures, the details of all directors and the company secretary (if applicable) and a list of the owners with 25% or more of the shares, as well as verifying the information provided by the lead investor.

As far as we are aware, applications will remain open until 30 September 2020. The Government has indicated that it will likely make decisions on applications within three weeks of submission and the release of funds will be turned around fairly quickly.

For anyone wanting to apply, the full terms of the Future Fund convertible loan agreement, along with supporting FAQs for investors and companies can be found here: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/future-fund/

As with all investments, we’d strongly suggest that the company, lead investor and matched investors to take legal advice before submitting their application.

Primas is here to advise on both term sheets with matched investors and to guide you through the terms of the convertible loan note instrument itself. This will enable you to make a well-informed, commercial decision on whether this is the right means of investment for you.