The Fund will be run by the British Business Bank and eligible businesses will have to be trading for five years, although the specific trading state date in 2015 has not been published with the initial announcement at midnight on 20 April 2020. 

The bridge funding will automatically convert into equity on the company's next qualifying funding round at a minimum conversion discount of 20% (discount rate) to the price set by that funding round with a company repayment right in respect of the accrued interest. 

The headline terms are set out in a three-page document, but the government stressed that more details would be released in ‘due course’. This initial announcement is subject to change at short notice by HMT and BEIS.

The Conservative majority government has come in for criticism from numerous niche stakeholder groups that fall outside the current eligibility criteria for the raft of state aid schemes and grants announced in the last month.

The Chancellor Rishi Sunak has now responded with a targeted Future Fund to provide government loans ranging from £125,000 to £5m, subject to at least equal match funding from private investors, to UK-based ‘innovative companies’.

There will be strict controls in place to ensure any matched funding is not used for settling outstanding debts and salaries, for example.

The language in the guidance appears to have written by legislators in terms of the tone, and is likely to be legislated via statutory instrument or as an amendment to the Coronavirus Act 2020.

Eligibility criteria

• business is based in the UK;
• business must attract equivalent match funding from third party private investors and institutions;
• business has previously raised at least £250,000 in equity investment from third party investors in the last five years.
• Full eligibility criteria will be published in due course.

The first version of the guidance, issued 20 April 2020, states: ‘There shall be no cap on the amount that the matched investor(s) may loan to the company and therefore no cap on the aggregate bridge funding being provided.

‘Use of proceeds: the bridge funding shall be used solely for working capital purposes and shall not be used by the company to repay any borrowings, make any dividends or bonus payments to staff, management, shareholders or consultants or, in respect of the Government loan, pay any advisory or placement fees or bonuses to external advisers.’

These convertible loans are targeted at businesses that raise finance via equity investment, for example. Again there will be a requirement for stringent controls to ensure this scheme is not abused.

The terms of the loan states: ‘The Government shall be entitled to transfer the loan and following conversion of the loan, any of its shares without restriction to an institutional investor which is acquiring a portfolio of the Government’s interest in at least ten companies owned in respect of the Future Fund. 

'In addition, the Government shall be entitled to transfer any of its shares without restriction within Government and to entities wholly owned by central government departments,’ according to the headline terms set out by the document co-issued by the Treasury and BEIS.

As with the CBILS, CBILLS and Covid Corporate Finance Facility for listed businesses, the scheme will be delivered in partnership with the British Business Bank. The state will match the amount of equity funding raised by businesses from equity funds.

Now nearly five weeks into lockdown on Monday 23 March, the government has launched various iterations of the various business loan schemes on offer, from CBILS to the Large CBILS programme and the Covid Corproate Finance Facility.

The funding will be not released until May 2020 and the Treasury admitted that full details of the scheme were not yet available, but that these ‘will  be published in due course’.

British Business Bank  Future Fund, convertible loan key terms, issued 20 April 2020