02 June 2020

On Wednesday 20 May 2020, applications opened for the UK Government’s Future Fund. Administered by the British Business Bank, the £250 million scheme will provide convertible loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal matched funding from private investors. In previous blog posts, we explored market reaction to the indicative terms of the Future Fund. Now that the final guidance has been issued, we set out below an updated overview of the terms of the convertible loans as well as a steps plan setting out the process of how companies can secure funding under the scheme.




  • Unlisted UK registered companies (incorporated before 31 December 2019)
  • AIM quoted companies will not qualify
  • Previously raised at least £250,000 in equity from third party investors in the last five years (from 1 April 2015 to 19 April 2020).
  • Substantive economic presence in the UK, meaning:
    • half or more employees are UK based; or
    • half or more revenues are from UK sales.
  • If the company is a member of a corporate group, it must be the ultimate parent company. This means that UK start-ups that participated in US accelerator programmes and consequently have a US parent company, will be excluded from the scheme.

Matched Funding

  • Funding must be matched by private investors. Each investor must meet fall within a certain defined category of investor. This means that friends and family will not be able to provide the match funding
  • Matched funding can be provided by non-UK investors as well as UK investors
  • Private investors must contribute at least half of the total amount of bridge financing raised
  • See below re EIS and SEIS compatibility.

Loan Size

  • Government bridge funding between £125,000 and £5 million
  • No maximum amount of bridge funding from private investors.

Use of Proceeds

  • Must be used solely for working capital purposes not to:
    • Repay any debt from a shareholder or a shareholder related party (other than the repayment of any borrowings pursuant to any bank or venture debt facilities)
    • Pay any dividends or other distributions
    • For a period of 12 months from the date of the relevant loan agreement, make any bonus or other discretionary payment to any employee, consultant or director of the company other than as contracted prior to the date hereof and as paid by the company in the ordinary course of business
    • Pay any advisory or placement fees or bonuses to any corporate finance entity or investment bank or similar service provider on monies advanced by the Future Fund.


  • Conversion at a minimum 20 per cent discount to the price set by the relevant funding round. The rate will be higher if the company agrees a higher rate with matched private investors
  • Conversion into the most senior class of equity
  • Automatic conversion to shares on a "qualifying funding round" (where the company raises an amount at least equal to that raised through the scheme)
  • On a "non-qualifying round" (where the company raises an amount that is less that the amount raised through the scheme) a majority of the matched investors will have the right to elect to convert at the 20 per cent discount
  • On an IPO, the loan will convert at the 20 per cent discount or be repaid (with a 100 per cent redemption premium) – whichever results in the greater return
  • On conversion, only the principal of the loan will attract the discount rate, not any accrued interest.


  • Loan is repayable after 36 months
  • If the Government and the matched investors elect to redeem the loan at the date of maturity (or on a sale or IPO), the amount to be repaid will be the full amount of funding, plus a premium equal to 100 per cent of the principal amount (not the interest)
  • The scheme is designed to provide bridge financing for companies that will go on to raise additional equity and therefore trigger the conversion of the loan into equity. If there is no such further fundraising, the redemption provisions will apply and the company will have raised a relatively expensive form of debt finance.


  • There is no right for the company to elect to repay the loan.


  • 36 months.

Interest Rate

  • Interest shall accrue on the loan at a rate of 8 per cent per annum (not compounding) payable on maturity of the loan
  • The rate will be higher if the company agrees a higher rate with matched private investors.

Government Rights

  • Limited corporate governance rights during the term of the loan and as a shareholder following conversion of the loan
  • There is a good faith obligation to discuss governance rights for the Government upon a conversion
  • Company to provide customary fundamental warranties and limited covenants
  • The company must provide the Government with historical financial information within 90 days from signing the loan agreement. Additionally, the company must provide a quarterly report including financial and investment information to the Government.

Most favoured nation

  • If more favourable terms are given to future investors, those terms shall automatically apply to the funding provided under the scheme.

Negative pledge

  • The creation of any indebtedness which is senior to the loan from the Future Fund will not be permitted (unless such indebtedness is from a genuine third party that is not an existing shareholder or investor).


  • The Government may transfer the loan and, following conversion of the loan, any of its shares to an institutional investor which is acquiring a portfolio of the Government’s interest in at least 10 companies.

EIS/SEIS relief

  • The match funding will not be EIS or SEIS qualifying. Given that the majority of angel investors will be looking for EIS / SEIS relief, the pool of potential investors is significantly narrowed
  • The British Business Bank has confirmed that previous EIS / SEIS investments will not be affected where the convertible loan converts into shares and that the government intends to make changes to the rules to clarify that the same is true where the convertible loan note is redeemed.

Available Funding

  • The Government will initially make up to £250 million of funding available in total for the scheme. This amount would equate to providing support for between 50 and 2,000 companies. Encouragingly, the Chancellor has stated in the House of Commons that if the demand was there the Government would be “more than happy to expand the scheme”
  • Initial applications have exceeded the £250 million initial pot and so an extension is expected.

We set out below a step plan for companies that wish to secure funding under the scheme:

  • Discuss the company’s eligibility for the scheme and agree the specific commercial arrangements with the company’s investor(s). The lead investor will then submit an application using the British Business Bank’s online portal
  • The company will be asked to identify a nominated solicitor to support it through the process and also hold client monies. Once checks have been completed on the nominated solicitor, the company will formally instruct the solicitor to act on its behalf in relation to the scheme
  • If the application is successful, the following scheme documentation will be issued by the Government:
    • executable convertible loan agreement to all parties for e-signing
    • solicitor’s confirmation that the investor(s) completion monies have been received into its client account, and
    • a director’s certificate (to be signed by one director of the company) confirming that the company meets the eligibility criteria and is in receipt of all corporate authorities and debt approvals and/or waivers needed to enter into the loan agreement.
  • On receipt of the signed scheme documentation (and provided it is satisfied that everything is in order) the Government will sign and date the loan agreement and release it to the company and investor(s), thus completing the transaction. The Government will the send its completion monies to the solicitor, who then release all of the funds to the company.

If you would like to discuss any aspect of the Future Fund in further detail, please contact Mark Shepherd, Alex Lloyd  or your usual contact at Burges Salmon.

Key contact

Mark Shepherd

Mark Shepherd Partner

  • Head of Private Equity
  • Corporate
  • Healthcare

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