We have previously shared our thoughts in connection with the advantages and disadvantages of Convertible Loan Notes (CLN), and discussed the various funds recently adopted by Scottish Enterprise aiming to support small start-ups and early stage companies during COVID-19. Since then Scottish Enterprise have opened applications for their new Scottish Government fund to be managed by the Scottish Investment Bank, where funding will be provided through a combination of CLNs and a grant. Applications will also be accepted for CLNs only.
The fund known as the "Early Stage Growth Challenge Fund" aims to assist early stage high growth companies where the impact of COVID-19 has had a negative effect on companies' revenue, working capital costs or access to equity investment, resulting in a cash shortfall. Such companies may have been forced to re-direct cash resources away from the intended growth of the business and investor milestones.
To be eligible to apply there are certain criteria that must be met. Full details are listed on the Scottish Enterprise website and include, the applicant:
- being based in Scotland or having the majority of its operations there
- being a private limited company
- having a turnover of less than £10 million or a balance sheet value of less than £10 million
- being a high growth and innovative company, registered for at least one technology right e.g. a patent, design right or protection certificate.
Applications for the fund opened on 20 July 2020 and is due to close at 5pm this Friday, 31 July 2020. With £25 million being invested through the fund and the ability for companies to receive between £50,000 to £300,000 per company, this is a good opportunity for those high growth start-up companies needing assistance to weather the COVID storm, particularly so as any grant element involved will not be required to be repaid and will likely amount to around 20% of any awarded funding. With that being said, the terms of the CLN are non-negotiable and companies must choose whether to repay the CLN with accrued interest or allow Scottish Enterprise to hold equity in the company to the value of the loan. This is a consideration for any company applying for such a fund and the individual commercial characteristics of your company should be considered before taking on any such obligations.
The fund has a limited resource and unlike previous Scottish Enterprise funding, it is not awarded on a first come first served basis but rather on competitive merit. Funding rewards will be given to those companies that Scottish Enterprise think have the most to contribute to Scotland's recovering economy and where they believe such funding will make the greatest successful contribution.
If you are concerned with the economic impact of COVID-19 on your company's financial reports and growth there may be various investment opportunities available for you to consider. If you would be interested in finding out more a member of our corporate team would be happy to discuss.