Corsham-based Purple Lime accountants demystify the Future Fund.
Many businesses need extra support due to the ongoing uncertainty resulting from coronavirus, even though there may not have been a significant impact on their bottom line. Thankfully, a number of support services and schemes have been created since February to help these businesses, but the number of options available can make it hard to find just the right one. The Future Fund is one of the lesser-known options available, but applications close at the end of September – if your business could benefit from the significant advantages the Future Fund can offer, speaking to a business accountant now could help you reap the rewards.
What is the Future Fund?
The Future Fund is a £250 million pot being used to provide government-backed loans through the British Business Back. It’s one of many government-backed relief efforts to arise as part of the coronavirus relief efforts and is worth between £125,000 and £5 million to innovative businesses. The difference with the Future Fund is that it needs to be matched by private investors.
While the CBILS and the Coronavirus Job Retention Scheme have helped many businesses, they haven’t proved suitable for start-ups and scale-ups, and so the Future Fund was created. The aim of the Future Fund is to protect British innovation, and so the wider British economy, through targeted support for pre-profit innovators, helping them to cover their costs.
The Future Fund takes the form of a convertible loan note – different from many of the other forms of support and funding available for businesses post-lockdown. Also known as a Convertible Loan Agreement (CLA), this translates into equity during the company’s next fundraise or exit. CLAs have minimum standards a business has to meet before being deemed eligible, such as the terms of the loan, interest rates, use of proceeds and equity conversion. However, businesses can negotiate with their private lenders in order to increase the benefits to the business and the value of the support. The 4 areas of negotiation 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.
Having a full understanding of what the Future Fund could mean for your business, plus the information and guidance you need to negotiate with private lenders could put you in a stronger position when it comes to having your application accepted. A business accountant can help you with all of these aspects.
Eligibility Criteria for the Future Fund
There are 5 simple criteria your business must meet if you want to apply for the Future Fund, as set out by the UK government. 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 want support in applying for the Future Fund, or if you want to check whether your business meets the eligibility criteria, we recommend you speak to a business accountant. They can guide you through the finer points of the scheme, if the Future Fund will provide the best benefit to your business and if you should apply. As the application process can be quite complex, a business accountant will also be able to take you through this and make sure your paperwork is in order before applying to increase your chance of success.
How to Apply for the Future Fund
This scheme is slightly unusual in that it is the private investor who takes the lead in the application process, not the business benefitting from it. There are 5 stages to applying, and the steps look like this:
- The investor certifies that they meet the eligibility criteria, and provides 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. This is where a business accountant can support you.
- 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.
We advise you speak to your business accountant before you apply – they will be aware of all the intricacies of the eligibility criteria and will be able to help you through the entire application process.
Here at Purple Lime, we are guiding some of our clients through the complexities of the Future Fund application process. If you want advice about any aspect of your financial planning or would like to know if the Future Fund is the right route for you to take, please email firstname.lastname@example.org, or call us on 01249 691360 to talk to one of our team.