The Government has announced today (20 April 2020) its Future Fund initiative to provide government loans to unlisted UK-based companies facing financing difficulties due to the Coronavirus outbreak. The loans will range from £125,000 to £5 million, and have a 36 month maturity, with the proviso that the amount loaned will have to be at least matched by new private investor funding.
These loans are intended to assist early stage companies, particularly those which are in receipt of private equity or venture capital investment, and are to be used solely for working capital purposes. To qualify, a business must have previously raised at least £250,000 in equity investment from third party investors in the last five years. The loans may be a suitable option for businesses that are unable to access the Coronavirus Business Interruption Loan Scheme.
The Government will initially make up to £250,000,000 in total available for the scheme and will keep this amount under review. The scheme will launch in May 2020 and initially be open until the end of September 2020. The scheme will be delivered in partnership with the British Business Bank and details of how to apply will be published in due course.
The terms of the loans are likely to be quite complicated, as they will convert into equity, usually at a discount (a benchmark minimum 20% discount is referred to, but other levels of discount can also apply), including when the company’s next funding round takes place and on a sale or IPO. A majority of the matched investors can elect that on maturity their loan is converted or repaid with a 100% redemption premium. The Government’s loan shall convert on maturity unless it requests repayment.
The Government will receive a minimum of 8% per annum (non compounding) interest to be paid on maturity of the loan.
The loans will be required to be backed up by warranties and covenants from the company, and their terms will include Most Favoured Nation and negative pledge provisions. In view of this, and as the terms will require shareholder authorities and changes to the company’s constitution, directors of companies considering applying for a loan should take legal advice promptly.
The Government’s guidance on the Future Fund can be found here:
If you require advice on making an application to the Future Fund or the terms of the loan offered, please get in touch with your usual contact at DMH Stallard LLP or Nick Williams at firstname.lastname@example.org.