Equity Initiatives for Early-Stage Business
The Government has dramatically expanded its provision to early-stage businesses, but the avalanche of new terms and acronyms has led to some confusion. This article gives an overview of the funding opportunities that the Government is offering to startups that are based in the UK. Links to the gov.uk website are provided throughout so that, if you want to learn more, you can hear it from the horse’s mouth.
Eligibility: a company must have already raised £250k or more in investment within the last 5 years.
This is the only equity financing option that the Government offers to early-stage businesses. To speed up deployment, the money is, in fact, a loan. The expectation is that this loan will be converted to equity at either the next funding round or the company’s IPO. Although, if the company never re-raises then the loan must still be repaid. As well as meeting the prerequisites, companies must also find matched funding to secure the money from the Future Fund.
This article is written to cater to early-stage businesses so we will skip over CLBILS and CCFF, which are aimed and large corporations. It’s important to remember that if a lender rejects your application under either of the schemes below you can still apply to other lenders. Although, it might be a good idea to check your application before you do so!
Eligibility: Annual turnover must be below £45m and the business needs to show that it would be viable were it not for the pandemic and that it has been adversely affected by coronavirus.
Businesses can borrow up to £5m, with lenders incentivised by the fact Government guarantees 80% of the loan and pays interest and fees for the first 12 months. For loans above £250k, personal guarantees of up to 20% might be required by lenders. Lenders will require businesses to provide a borrowing proposal and demonstrate its ability to repay.
Bounce Back Loans
Eligibility: Open to all UK companies established before 1 March that have been adversely affected by the coronavirus.
This loan is aimed at less mature businesses and, to most people, has more favourable terms than CBILS. The maximum loan size under this scheme is £50k but this is only available to businesses that have a revenue of £200k or more. The available loan amount is whichever is larger out of £2000 and 25% of a business’ turnover. For instance, the maximum loan available to a business with a turnover of £80k would be £20k. This is problematic for many high-growth companies which are less likely to have substantial revenues in the earlier stages of their development.
The grants that are available to startups vary so much depending on a business’ sector and location that it wouldn’t be sensible to try to include a description of them all here. Instead, if you’re interested, you can follow this link to see what might be available to your business.
One note worth adding here is that many startups are unaware that they could benefit from R&D tax credits – you can even claim them from last year! If you’re developing something that constitutes an advance in science and technology of some kind then you should definitely take a look here.