Future Fund loans: Maturity date for government-backed loans is approaching 

Established in 2020 by British Business Bank (owned by the Department of Business and Trade), the Future Fund is a scheme purpose-built to support UK startups who were struggling financially during the COVID-19 pandemic by issuing three-year convertible loans. The terms of the loan agreement allowed British Business Bank to purchase equity in a participants business at a 20% discount once the loan is converted. 

Issuing loans ranging from £125,000 to £5 million, the fund opened on 20 May 2020 and closed the application window on 31 January 2021. The fund has provided finance to 1,191 companies and as of June 2023, 591 of these companies had converted the loan, meaning that the remainder of these convertible loans are on their way or have already reached maturity. 

If businesses are unable to pay, this could trigger an event of default under the loan. If you’re having difficulty repaying your loan or if you have any unanswered questions, we have compiled a list of frequently asked questions that you may want to consider.  

Our Partner and Head of Corporate, Adam Kudryl, comments: 

The default position for the Future Fund convertible loans is that they convert to shares in the borrowing company automatically on the Maturity Date (which seemed to be in all cases for our clients, the third anniversary of the loan).  

Borrowing companies who haven’t already triggered a conversion (by raising funds itself or by virtue of an exit) will be in the hands of the Future Fund, as the Future Fund can elect, instead of conversion, that the loan is repaid together with the 'Repayment Premium'. The Repayment Premium will be crippling for most businesses, as the premium is equal to the amount of the loan. 

Businesses who have outstanding Future Fund loans should review their loan agreement with the Future Fund, as there are strict notice provisions that the Future Fund needs to comply with in order to choose repayment over conversion. If the Future Fund does demand repayment and does not comply with the provisions of the loan agreement, then a borrowing company might be able to refuse to repay and instead force conversion – which could be a better outcome for the borrowing company. Whether the Future Fund will choose to demand repayment will be an interesting one.

The main takeaways

1. The maturity dates for the Future Fund loans are fast approaching – if you have one of these loans in place, you should be considering your options. 
2. The Future Fund is appearing to take a firm approach to the repayment of these loans and are insisting that the loan is repaid in full (plus a 100% redemption premium) for those who have not exited their business or paid the loan – this could mean that some businesses could find themselves on the verge of insolvency. 
3. The Future Fund may offer extensions on the repayment of these loans – but this is at their discretion and could come with a flurry of conditions for repayment. 
4. If your loan is approaching its maturity date and you are unsure of what to do next, you should consider seeking legal advice from a corporate solicitor.