On 20 April 2020, the UK government announced that it would be working with the British Business Bank to launch the Future Fund, a scheme which provides government loans ranging from £125,000 to £5 million to UK-based companies (subject to private investors matching the loans).

The aim of the program is to assist innovative businesses that may have been denied access to other financial support currently available under government schemes and might otherwise struggle to survive in the current economic climate. In this update, we examine some of the key features of the government’s Future Fund.

Is your business eligible for funding?

To qualify for a Future Fund loan, a company must:

  1. be an unlisted UK registered company;
  2. have raised at least £250,000 in aggregate from private third party investors in previous rounds in the last 5 years; and
  3. have a substantive economic presence in the UK.

If the company is a member of a corporate group, only the ultimate parent company (if a UK registered company) is eligible to receive the loan. Early stage companies and start-ups that have not yet raised £250,000 will therefore not qualify for the scheme.

Does your company need to have been impacted by Coronavirus to apply for the Future Fund?

No, there is no requirement for you to show that your business is suffering from a Covid-19 downturn. The government’s approach is that all UK start-ups (not just those currently in distress) are able to benefit from the Future Fund, provided they can raise external funds. However, it should be noted that not all scheme details have been published and therefore other eligibility criteria might be added at a later date.

What funds are available and what can they be used for?

With the Future Fund, the government will provide matched funding on a convertible loan note basis. The minimum amount of the loan will be £125,000 and the maximum amount will be £5,000,000. The amount of matched external funding will not be subject to any cap and there is therefore no cap on the aggregate bridge funding being provided.

The funding can only be used for working capital purposes and cannot be utilised to repay any borrowings or to make dividend or bonus payments to staff, management, shareholders or consultants. In the same vein, payments of any advisory or placement fees or bonuses to external advisers are prohibited.

What are the material terms of the Future Fund loans?

Conversion: the principal amount of the loans will automatically convert into the most senior class of equity on the company’s next “qualifying funding round” at a minimum conversion discount of 20% (the “Discount Rate”) to the price paid by new investors in that round.

On a “non-qualifying funding round”, at the election of the holders of a majority of the principal amount held by the matched investors, the bridge funding will convert into equity at the Discount Rate to the price set by that funding round.

The loans will also be convertible upon a sale or an IPO, if not converted or repaid beforehand.

Interest: the government loans will be unsecured and receive a minimum of 8% per annum (non-compounding) interest to be paid on maturity of the loan. This interest rate can be increased if a higher rate is agreed between the company and the matched investors.

Repayment and Term: if not converted earlier, the loans will mature after a maximum of 36 months. Interest will be payable at maturity and the company will be permitted to repay accrued interest in cash.

Government rights: the government will have limited corporate governance rights during the term of the loan and as a shareholder following conversion of the loan. It will also require:

  • fundamental warranties (such as in respect of ownership, capacity and borrowing facilities of the company);
  • customary limited covenants (including compliance with law and information rights);
  • a “most favoured nation” right, which ensures that the Future Fund will benefit from more favourable terms given to investors if the company issues further convertible loan notes;
  • a negative pledge, which prevents the company from creating senior indebtedness (except to a bona fide third party that is not an existing shareholder or matched investor); and
  • transfer rights, which allow the government to transfer the loan and, following conversion of the loan, any of its shares without restriction to an institutional investor acquiring a portfolio of the government’s interest in at least ten companies owned in respect of the Future Fund. In addition, the government will be allowed to transfer any of its shares without restriction within government and to entities wholly controlled by central government departments.

How and when can your company access these funds?

The British Business Bank is likely to administer the scheme and the application process. Its website states that the “intention” is for the Future Fund to be launched in May and that it “will initially be open until the end of September”. Applicants will be subject to standard customer fraud, money laundering and KYC checks before any loan is made.


Details relating to some of the key aspects of this scheme are still to be released by the government but the launch of the Future Fund shows that the government is listening to start-up businesses. The Future Fund could give certain UK start-ups the boost required to power through these difficult times, perhaps even leaving some of their international competitors behind.

A breakdown of the Future Fund’s Headline Terms is available via the government’s Future Fund page, which will presumably also be updated once the application process goes live.

If you have any queries about this topic please contact the Edwin Coe Start-up team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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