We use cookies to improve your experience on this site. By viewing our pages, you give us consent to use cookies. Find out more.

Lobbyists Call For Funding Package To Protect Start-Ups

Posted 7 months ago

Lobbyists Call For Funding Package To Protect Start-Ups
Share this article:

Author: Sacha Bright & Oliver Murphy

Tech Start-ups could be “wiped out” without a government bailout. That’s the verdict of seven of the UK’s leading tech industry lobby groups in a letter to the Chancellor Rishi Sunak amidst growing concerns about the impact of Covid-19.

According to a letter sent to the Chancellor, seven tech industry bodies are calling on the government to provide a £300m funding package to keep start-ups liquid during the coronavirus outbreak.

Under the Coronavirus Business Interruption Loans Scheme (CBILS), companies with a turnover of up to £45m can apply for a loan of up to £5m, which will be interest-free for a year and have the risk underwritten by the Treasury.

However, in response to backlash, the scheme was revamped so that companies no longer have to prove they are unable to get loans on commercial terms as well as banning banks from asking for personal guarantees. The move is expected to allow more businesses to access government-backed loans.

Yet, as NextFin has reported, even with sweeping changes many early-stage businesses will not qualify for the government’s CBILS.

The needs of early-stage and pre-revenue companies have still not been met. Many lack the trading history required for banks to consider them as ‘viable’ entities if their operations were not being disrupted by Covid-19. Indeed, most start-ups are loss-making and could be at a disadvantage when it comes to securing a government-backed loan.

According to Tech Nation: “Nearly all businesses we speak to would welcome a cash injection due to cashflow issues. While many tech scale-ups are cutting costs and conserving cash, many are in the middle of raising more funding, which we’re already seeing signs of slowing down,”

Reports, 62% of companies only have around three months’ funds in reserve and nearly one in five have less than a months’ cash as revenues continue to fall.

In an interview with CNBC, founder of Tech London Advocates, Russ Shaw argued that “the loan program is not relevant to a lot of start-ups in the ecosystems.”

A survey of the Tech London Advocates’ network, which has 10,000 members, also showed how much of a threat the current pandemic is to startups.

Out of those who responded, 49% see the coronavirus outbreak as an existential threat. 53% of respondents are now reorienting their next quarter’s business models around survivability.

What can the government do?

Markets have become increasingly volatile as the impact of the spread of the coronavirus becomes more pronounced. Global stocks soared on Friday, after record falls on Thursday, meaning that many private investors have been at pains to invest.

Industry groups are hoping the government can mitigate this and its associated impacts on start-ups with a so-called ‘Runway Fund’ to be created by the Treasury. Such an initiative is believed to involve investing £300m through the British Business Bank to help give startups time to survive using a form of notes which can be converted into equity when a company raises capital.

Already, France has introduced a 4 billion euro funding package to support its start-ups’ cash flows.

But there are other possible avenues. As NextFin has outlined, a key way to stimulate billions of pounds in investment would be for the government to temporarily raise the income tax relief credit to 50% for EIS and 70% for SEIS, and also increase SEIS investment threshold to £250,000 and £10 million on the EIS.

On SEIS, for example, this could equate to roughly a £150,000 cash injection per business for tens of thousands of early-stage businesses, that otherwise would not be able to afford to repay a loan and face the danger of having to close their doors.

Disclaimer:

To the best of our knowledge, the information we have provided is correct at the time of publishing. SEIS and EIS tax benefits are dependent on your financial circumstances. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. 

Risk Warning:

Investing in equity crowdfunding and early-stage businesses involves high risks, which may include long-term investment horizons, illiquidity, lack of income and potential dilution. Any investor needs to be in the position to afford a total loss of capital invested.

NextFin is targeted at members who have the knowledge and experience to understand these risks and make their own investment decisions. You will NOT invest through NextFin but through the relevant crowdfunding website which also has signed off the content as a Financial Promotion on its own website. NextFin is not the originator of the financial promotions that appear on its site. However, we do to the best of our ability carry out limited compliance checks on the originator and the company seeking funding to ensure they are conforming to FCA regulations and anti-money laundering equity/requirements as appropriate. Business Agent Limited, trading as NextFin, takes no responsibility for this information or for any recommendations or opinions made by the companies or its users. Click here for our full risk warning.



Tagged: News EIS SEIS Start-ups



Be a contributor to our blog click here to contact us
Click here to sign up to our newsletter

0 comments

Log in to comment

We reserve the right to remove comments which are inappropriate and/or offensive.
Comments are not the opinion of Nextfin.uk. Please read the comment guidelines
  • Internet Business Awards Category Award Winner 2015
  • Hertfordshire Business Awards Finalist 2014

As seen in:

  • The Guardian
  • Financial Times
  • Yahoo! Finance
  • The Times
  • The Daily Telegraph