Cash crunch for start-ups as Sunak calls in pandemic loans

HUNDREDS of taxpayer-backed start-ups are facing a looming cash crunch as Rishi Sunak’s pandemic tech fund calls in bailout loans.

The Future Fund has begun writing to companies that received Treasurybacked rescue financing during the Covid crisis, warning them that it will demand repayment within months.

It raises the risk of struggling firms unable to pay the loans going bust at the Government’s behest, or the taxpayer seeing heavy losses on the £1.1bn fund.

Some 550 businesses – almost half of the 1,191 that the Government backed – still have loans outstanding under the scheme, which was championed by Mr Sunak in the early weeks of lockdown.

The fund, set up in May 2020, issued loans of up to £5m that lasted for three years, meaning the first ones are due to be repaid within months.

The taxpayer-owned British Business Bank (BBB), which now administers the fund, has written to start-ups that have less than six months before the loans are due, urging them to go to investors to raise new financing.

Under the Future Fund’s terms, companies that raise new funding see the loans converted to shares in the company. However, if start-ups are unable to secure funding within three years, they would be required to pay the loans back on punishing terms.

The BBB has told start-ups that in limited circumstances, it would be willing to extend the loans in exchange for heavy discounts on future share conversions. The letters, believed to have been signed off by senior ministers, indicate that the Government is unwilling to write off loans.

Mr Sunak set up the Future Fund as chancellor in response to pressure from the tech industry after loss-making start-ups were ineligible for other pandemic relief schemes.

It was designed to be rigorous but has faced accusations of propping up zombie companies.

Some 515 companies have converted their loans to shares, leaving the taxpayer holding stakes in a diverse array of projects including a sex party organiser, an online betting firm, a toilet maker and Bolton Wanderers FC.

While 43 have been sold, leading to a return for the Government, 83 have gone into administration or insolvency, meaning the full value of the loan is unlikely to be recouped.

Companies that have failed to raise new funds from investors in the threeyear loan period are required to pay back double the loan amount, as well as annual interest of 8pc.

The demanding terms mean the 550 businesses with loans outstanding are likely to be scrambling to raise new funds in the coming weeks, putting them in a weak negotiating position with potential backers.

Businesses can request a loan extension, but must agree to give the Future Fund deep discounts when the loan eventually converts.

A British Business Bank spokesman said: “As the three-year maturity term of the first convertible loan agreements issued approaches, the Future Fund is reaching out to all remaining companies setting out the options available to them.

“If a company is not preparing a financing event that will lead to the conversion of the loan in the foreseeable future, the Future Fund will seek repayment of the original loan together with the redemption premium on the maturity date as per the terms of the agreement.”