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22nd May 2020

Future Fund Loan Scheme


22nd May 2020

Future Fund Loan Scheme

On 20 April 2020, the Chancellor announced the government’s plans to offer the £500m Future Fund Loan Scheme

The scheme went live on 20 May 2020. Lead investors are now able to submit applications via an online portal until the end of September 2020. The government, in partnership with the British Business Bank, is aiming to process applications within three weeks of receipt.

Loans will be provided on a first come, first served basis.

What does the Future Fund Loan Scheme involve and is it relevant for my company?

Unlike other support schemes proposed by the Government, this involves a commercial investment rather than a subsidy, and it requires matching funding from private investors.

This scheme may be limited in its applicability to early-stage companies in several respects, including its incompatibility with existing EIS and VCT rules and the quantum on offer relative to the likely demand. However, it may be relevant for later stage companies which are within striking distance of profitability and therefore capable of supporting debt, and which have institutional capital sources (or non-UK investors, or other investors who don’t rely on EIS or VCT status) capable as acting as the match-funding source.

The scheme involves a financial investment in the form of a convertible loan, and is similar in form and substance to that which companies would receive from a private investor or a venture capital fund on a bridge funding round

Requirements and Eligibility for the Future Fund Loan Scheme

The company must:

  • be an unlisted UK registered company;
  • have either at least half of its employees based in the UK or at least half of its revenue from UK sales;
  • have been incorporated on or before 31 December 2019;
  • ensure any government loan is at least matched by private investment; and
  • have previously raised at least £250,000 in aggregate of private investment from third party investors in the last five years.

For companies in a group structure, only the ultimate parent company (if also registered in the UK) shall be eligible to receive the loan.

Future Fund Loans – Key Features

The government will make a minimum loan of £125,000 and a maximum loan of £5,000,000, matched by one or more private investors, but with no limit on matched investor amount(s) above that matched funding amount.
The loans will convert into equity shares on an applicant company’s next qualifying funding round or before if a conversion event occurs, such as an exit.

If the loans have not converted before the 36 month maturity date, then at that date they will convert into equity shares in the company, unless the lenders elect to be repaid by the company in which case a 100% redemption premium will apply.

Early repayment of the loan is not permitted.

The only negotiable terms relate to (i) the interest rate which shall be at least 8% per annum, (ii) the conversion discount rate which shall be at least 20%, (iii) headroom for investments made on the same terms within 90 days of the Future Fund documents being entered into (such amounts are not matched by the Government) and (iv) any valuation cap on a conversion.

The Future Fund final terms have now made clear that appointing solicitors is a necessary part of the application and that the government loan under the Future Fund scheme will be sent to the appointed solicitor directly for onward transfer to the company. Companies will be required to self-certify prior funding eligibility and corporate authorities such as there being no conflicts with any prior debt funding. Prior to submitting an application, existing investment arrangements will need to be reviewed and potentially amended. It is therefore recommended that applicant companies seek professional advice from their solicitor on these points.

Further details of the Future Fund Scheme can be found by following the link.

Government rights

By entering into the loan agreement with the government, companies grant certain rights to the government investment vehicle which should be noted. These include, but are not limited to, (i) information rights such as historic financial performance and quarterly financial reports, (ii) governance rights including the right to request a meeting with a company prior to a conversion event, together with other standard corporate governance rights which companies have toward investors, (iii) anti-embarrassment rights and (iv) the right to transfer the loan or equity shares to an institutional investor.


The Future Fund Loan Scheme provides helpful emergency support for some companies that may be ineligible for other government-backed emergency loan schemes.

However, the loan details are fairly complex, although it is likely that many applications will relate to companies which have had experience of similar types of investment.

The requirement to obtain matched private investment, a relatively high rate of interest on the loan, a 100% redemption premium, and the potential conversion into government-owned equity shares in the borrowing company, are important considerations.

It is recommended that companies which intend to apply for support under the scheme first obtain legal advice from a solicitor.

If your business has been affected as a result of COVID-19 and you would like to speak to someone, please contact a member of our Corporate team.

Details of the other government loan/funding schemes available can be found in our Funding/Loan section of our Coronavirus (COVID-19) – Legal advice and guidance page.

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