UK fintechs to get coronavirus funding boost

The £1 billion fund from the UK Treasury includes £750 million of direct loans and grants for innovative businesses and up to £250 million for an investment fund for high-growth companies

UK-based fintechs will gain access to a £1.25 billion funding package next month, as startups and fledgling businesses deal with the ongoing coronavirus (Covid-19) pandemic.

The £1 billion fund from the UK Treasury includes £750 million of direct loans and grants for innovative businesses and up to £250 million for an investment fund for high-growth companies. Another £250 million for this fund is expected to come from private investors.

The new funding package has been made available following criticism of the job retention and coronavirus business interruption loan schemes. The latter proved inaccessible to many startups and fledgling businesses, with banks unwilling to lend with exposure of 20% of the loan value.

The £750 million of targeted support for innovative businesses will be available through Innovate UK’s grants and loan scheme, allocated if a company passes an ‘innovation assessment’.

The £500 million public-private investment scheme will launch in May through the British Business Bank.

UK-based companies will be able to obtain between £125,000 and £5 million of public funding, which will be matched at a minimum by private investors. Eligibility will be restricted to companies that have raised at least £250,000 in equity investment from a third party over the past five years.

Nimesh Shah, partner at business advisory firm Blick Rothenberg, welcomed the funding to support startups and fledgling businesses, but warned that many may still miss out due to the eligibility requirements and the need for private investors to commit before paying out. 

He said: “For a business to qualify, it would have had to have raised £250,000 from third party investors over the last five years. This will immediately exclude some pure start-ups and fledgling businesses who haven’t had such investment.”

Where the business is eligible, the fund will match any investment made by private investors. It therefore needs private investors to commit before it pays out, Shah explained.

He added: “Raising investment is one of the biggest issues for start-up businesses, even during normal times, and it is going to be naturally more challenging to convince private investors given the present situation.”

Image: Shutterstock

Mark Dugdale