On the 20th April, the UK government announced a convertible loan scheme to help innovative UK startups that are experiencing financing difficulties due to COVID-19. The Future Fund will initially make up to £250m available to eligible startups.
Who is eligible for Future Fund support?
The scheme will launch in May 2020, but the full details are still unavailable. However, the government has set out some headline terms to provide guidance on what to expect and who can apply for the convertible loans.
According to the terms, you’re eligible to apply if your business:
- Is UK based.
- Can match the amount of government funding from third-party private investors and institutions.
- Has raised at least £250,000 in equity investment from third-party investors during
- the last five years.
Why investment in startups is key to post-COVID-19 economic growth
We’re already seeing some high street retail giants fall into administration, and arguably those businesses were encountering issues before COVID-19. In some cases, the lockdown was simply the straw that broke the camel’s back. What many of these struggling big businesses have in common is that they often aren’t agile or modern enough in the way that they operate.
Startups, by their nature, tend to be innovative and agile. They’re built for the modern world and the technology that exists today, with an eye on what tomorrow will bring. Unencumbered by complex processes and outdated systems, they have the ability to disrupt traditional industries and breathe new life into them.
Britain has a long history of entrepreneurship, with over 660,000 new companies registered in the UK every year.Without proper investment, these fledgling companies could fail prematurely, creating high unemployment, and reducing the innovation that the economy desperately needs to keep growing.
When we think of economic growth, it’s easy to believe that it’s the big household-name players making the difference. However, small to medium sized enterprises make up over 99% of UK businesses. They also provideover 60% of jobs.
The manufacturing sector has seen a lot of innovation over the last decade with robotics and automation becoming more and more commonplace. Manufacturing outsourcing is making innovation and more agile ways of working accessible to startups and smaller businesses. At Nexus-IE we help businesses deliver their products to market, including vital innovations in healthcare technology. Without proper investment in startups, this kind of innovation will stall as companies are forced to abandon research and development due to lack of funding.
The Future Fund in practice
So, is the Future Fund the first step in protecting these valuable startup businesses?
It’s certainly an excellent step in the right direction. Some of the positives of the scheme are:
- The amounts available to borrow are quite wide-ranging. The minimum loan is £125,000 up to a maximum of £5,000,000.
- The scheme is designed to help companies that rely on equity investment and are ineligible for the Coronavirus Business Interruption Loan. It goes some way to supporting businesses that might otherwise fall through the cracks of the other support schemes available.
There are also some potential downsides to the scheme:
- The scheme isn’t fully launched yet, so beyond the initial guidelines, it isn’t clear precisely what the terms will be.
- The scheme is not yet open and if the application process is complex or slow to pay out, it could fall short of being the lifeline it was designed to be. Struggling startups need the funds as soon as possible in order to survive.
- Smaller startups that don’t require at least £250,000 of funding or that are self-funded and haven’t already gained substantial third-party investment won’t be eligible for this scheme.
- Any funding received has to be used as working capital and cannot be used to pay staff bonuses, any dividends or to repay debts.
How to apply
The scheme is due to be open between May and September 2020. More details about the application process will be released closer to the time. you will be able to find them and apply via this link
You can also find out more about any other government financial support, such as state-backed loans that may be available for your business here.