UK start-up companies receive funding boost from government

The government’s new loan scheme is intended to plug a gap left by venture capital investors. 

The government has announced £125 billion worth of taxpayer-backed loans aimed to provide support and funding for UK start-up companies focused on technology and life sciences.

The purpose of the scheme is to protect emerging and innovative parts of the UK economy during the current economic climate. With asset prices tumbling and the economic outlook grim, many usual investors will be reluctant to commit further capital to potentially risky start-ups, threatening the future of such companies. As James Tucker, chief executive of Twenty7Tec, a mortgage fintech firm, notes: “Many [of these companies] are loss-making in their first years and so need firm backing from business angels, early investors and venture capitalists.”

The government’s new loan scheme is intended to temporarily fulfil these funding needs. Tucker adds: “This move by the Chancellor using convertible loans looks set to plug a gap in the market and give a real boost to the companies that will emerge as the tech stars of the future.”

The scheme is divided between a new £500 million loan scheme for high-growth firms, known as the Future Fund. A further £750 million of targeted loans will also be offered for small- and medium-sized businesses that focus on research and development.

Delivered in partnership with the British Business Bank, the scheme is due to launch in May.

The announcement was welcomed by the Association of Investment Companies, a trade body that represents Venture Capital Trusts (VCTs), which invest in early stage businesses and start-ups.

Ian Sayers, chief executive of the AIC, notes: “The government’s plan to provide loans to some of the UK’s most innovative companies is really encouraging. Coronavirus has had a devastating impact on the economy and it’s particularly important that these high-growth, dynamic companies survive, grow and thrive.

“VCTs support these types of innovative companies with high potential for growth in sectors as diverse as healthcare, retail and green technology. VCTs meet the funding gap for these companies but also provide wider expertise and support to help them grow. It is vital that the UK provides a fertile environment for these dynamic companies which have the potential to grow into tomorrow’s household names.”