Bailed-out tech start-ups miss deadlines to repay Covid loans

ALMOST 100 loss-making businesses bailed out by Rishi Sunak’s pandemic fund have missed deadlines to repay loans, raising further questions about whether the taxpayer will make a return on the £1.1bn scheme.

Figures from the Future Fund, which was set up in 2020 to provide emergency financing to start-ups, show that 97 companies have been granted extensions on the three-year loans since last summer.

It follows concerns that the strict terms of the loans would tip hundreds of small companies into bankruptcy.

The Future Fund provided £1.1bn to 1,191 loss-making companies in 2020 and 2021. The funding came in the form of convertible loans, which turn into shareholdings when a business next raises money.

The scheme has left the taxpayer with stakes in hundreds of companies that are typically backed by high-risk venture capital. Although officials had been confident that the scheme would ultimately result in a profit for the taxpayer, figures last year revealed that the fund had lost £289m as of the end of March.

Figures published by the British Business Bank, which administers the fund, show that 62 of the 1,191 companies had been sold at the end of December, resulting in a cash return for the fund. Almost 700 of the loans have been converted into equity stakes.

A total of 173 companies had become insolvent, while 260 loans were outstanding – including the 97 that had extended their repayment periods. In nine of these cases, the firms have since raised funds, been sold or gone bust.

The number of companies forced to extend the loans suggests that many are struggling to raise cash.

Extending loans requires signing up to more onerous terms that give the Future Fund a significant discount should the borrowing ever convert to equity. One lawyer dealing with startups that have borrowed from the Future Fund said he was surprised by the number of companies extending loans because the terms for doing so are “quite punishing”, but he conceded that many had no choice.

He said that several founders were financing funding rounds themselves in order to meet the original terms of the loans. “It’s not a good environment [for raising new money],” the lawyer said.

The fund has attracted attention in part because of the eclectic group of companies it has ended up owning stakes in, including a sex party business and Bolton Wanderers Football Club.

A British Business Bank spokesman said: “Where the extension application is from a company that has the support of other CLA [convertible loan agreement] lenders, is not in default of its obligations under the agreement, passes our customer due diligence checks and is solvent, then the Future Fund will agree to an extension. This is true for almost all applications.”