For further information on the Future Fund, Innovate UK’s loan and grant schemes, or other ways that we may be able to assist your business during the COVID-19 crisis, please email company and commercial specialist, Frank Scott-Ashe, or call him on 01225 755656 to arrange an initial, informal chat.
The chancellor’s announcement
The chancellor has announced on 20th April that the Government will make available £1.25bn to start-up companies hit by the lockdown. The package is aimed at companies that are investing in research and development and/or scaling up their businesses as a result of which they typically tend to be loss-making at the outset; making them ineligible for the existing Government-backed loan schemes created to support businesses affected by the coronavirus outbreak.
Part of the funding (£500m) will be used for a scheme (the Future Fund) to be launched in May. The loans to be provided will range from £125,000 to £5,000,000.
Full and final details of the Future Fund scheme have yet to be finalised. Some of the key information is outlined in this article.
The rest of the funding (£750m) will be used to bolster existing loan and grant programmes for smaller companies focused on research and development.
Who is eligible for the Future Fund?
The scheme is available to private limited companies based in the UK who have previously raised at least £250,000 in equity investment in the last 5 years from third party investors (likely to be venture capital firms).
How will the Future Fund scheme work?
The business must raise funding from third party private investors and the Government will provide a loan matching the amount raised.
The loan may only be used for working capital purposes and, for example, could not be used to repay borrowings or make dividend or bonus payments.
The loan will be convertible into equity in the company in the event that the business raises further funding in the future, is sold or is floated on the stock market. In short, the Government may become a shareholder in the company although it is likely to have the right to transfer the loan and, once converted, its shares to an institutional investor or Government-owned body.
How to apply for the Future Funding scheme and is there any further information?
Details have yet to be finalised, but the scheme will be delivered by the Government in partnership with the British Business Bank.
The headline terms which are expected to apply have been published.
What about the R & D loan and grant schemes?
These are managed by Innovate UK, the national innovation agency, and most of the funding will be made available to its existing 2,500 customers. £175,000 support will however be offered to around 1,200 businesses currently not in receipt of funding from Innovate UK. The first payments will be made by mid-May.
Loans are offered through loan competitions typically to companies involved in late stage research and development projects which are close to being commercialised. Whereas grants are considered more appropriate for earlier stage, riskier innovations.
Information on the funding available and general guidance on how to apply may be viewed on the government website.
The announcement has been broadly welcomed by the venture capital community and is likely to benefit fast-growing innovative companies ranging from the tech to life sciences sectors which are seen as key to power the UK’s future economic growth.
For those businesses who have simply started out recently, are not focused on R & D and do not have any plan to scale up, the package is unlikely to be suitable. Where they have already explored the other financial support measures offered by the Government and their Local Authority and have not been able to secure finance from other sources, loans of up to £25,000 are available under the British Bank’s Start Up Loans programme for businesses in the first two years of trading. Details of this scheme are available on their website.