By Jamie Jemmeson ACSI, MSTA at Infinity International
Now more than ever, the focus of FDs, Treasurers and finance teams is likely to be firmly fixed on cash-flow. As a result, you will have seen from our other Infinity International blogs and insight pieces, we’re trying to ensure we provide content to our clients on several relevant topics covering a variety of possible concerns. To do this, we are drawing on our own experience, client feedback as well as the input from others in our network. Funding for businesses is a relevant topic and a priority through these unprecedented times.
According to Deloitte’s CFO survey for April just under a third of companies are accessing the Bank’s Covid-19 Corporate Financing Facility; whilst increasing cash flow was the second highest priority over the next 12 months. The Government Coronavirus Business Interruption Loan Scheme (CBILS) has already been released but is not right for every business. As a result, we have shifted our focus to the new Government lending scheme for SMEs, the Future Fund, and how it will operate. Official details were release this week with applications opening today. Understandably, the recent focus from the Government and the nation has been on the current changes in the lockdown restrictions and the milestones for further easing.
I spent some time chatting to the team at Polestar CF and asked Richard Hall, a corporate finance specialist for his take on the early stages of the Future Fund. For context, Richard is a Partner at Polestar CF, a business based in Guildford. Polestar CF has experience spanning three recessions and are well versed in working with Banks/Debt funds and other Specialist lenders to get the optimum results for clients.
Here are some of Richard’s initial takeaways:
The Future Fund is designed to support high growth, early stage businesses which the Government is hoping will help accelerate the economic recovery from Covid-19. The Government has recognised that CBILS is unlikely to provide a workable solution for businesses that have:
- Insufficient track record of sales/profitability on which to base a lending decision
- Unclear repayment potential/capability
- Lack of assets against which to securitise a loan
Thus, the Future Fund is designed to support businesses by taking on a share of the equity risk, rather than just a debt risk, as is the case with CBILS.
Eligibility criteria for the Future Fund require that the business:
- is UK-incorporated. (If your business is part of a corporate group, only the parent company is eligible)
- has raised at least £250,000 in equity investment from third-party investors in the last 5 years (1 April 2015-19 April 2020)
- has no shares traded on a regulated market, multilateral trading facility or other listed venue
- was incorporated on or before 31 December 2019
- has either:
- half or more employees UK-based and/or
- half or more of its revenues from UK sales
In addition to these, the critical point to note is that businesses will also need to have the ability to secure other third-party investment alongside the Future Fund, to at least equivalent value (effectively the Fund will only provide additional finance on a matched funding basis, up to a maximum of £1 for each £1 raised from other sources). Essentially it will supply enhanced liquidity to augment capital available from other 3rd party investors.
Applications for the Future Fund open on Wednesday 20th May, with an initial total quantum of £250m.
It is risk capital, not “cheap” money, with the following relevant in relation to the impact on your business:
- Funding per business of £125k – £5m
- Interest charged at a minimum of 8% or at the same rate as the associated matched 3rd party investment, if higher. This is rolled up and added to the loan rather than paid monthly, thereby avoiding issues of debt serviceability
- Funds are structured as a convertible loan (so convert to equity under certain criteria)
- The use of funds provided is restricted to exclude certain payments (primarily to shareholders and related parties)
We hope that this has helped to through the noise and draws out some of the fundamental aspects of this support package initiated by the Government.
If your business is looking for additional facilities to transact foreign exchange, do not hesitate to speak with us. Infinity International can offer competitive pricing and credit facilities (subject to approval) to assist your business. If there are any other angles, you would like input or thoughts on, do feel free to reach out to the Infinity International team and hopefully between us, and our network we can provide some relevant input.
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